At the completion of every audit, Roger Morris, CPA, calculates alarge number of ratios and trends for comparison with industry averages and prior-yearcalculations. He believes the calculations are worth the relatively small cost of doing thembecause they provide him with an excellent overview of the client’s operations. If the ratiosare out of line, Morris discusses the reasons with the client and often makes suggestionson how to bring the ratio back in line in the future. In some cases, these discussions withmanagement have been the basis for management consulting engagements. Discuss themajor strengths and shortcomings in Morris’s use of ratio and trend analysis.
At the completion of every audit, Roger Morris, CPA, calculates alarge number of ratios and trends for comparison with industry averages and prior-yearcalculations. He believes the calculations are worth the relatively small cost of doing thembecause they provide him with an excellent overview of the client’s operations. If the ratiosare out of line, Morris discusses the reasons with the client and often makes suggestionson how to bring the ratio back in line in the future. In some cases, these discussions withmanagement have been the basis for management consulting engagements. Discuss themajor strengths and shortcomings in Morris’s use of ratio and trend analysis.
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle
Section: Chapter Questions
Problem 38RQSC
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Question
At the completion of every audit, Roger Morris, CPA, calculates a
large number of ratios and trends for comparison with industry averages and prior-year
calculations. He believes the calculations are worth the relatively small cost of doing them
because they provide him with an excellent overview of the client’s operations. If the ratios
are out of line, Morris discusses the reasons with the client and often makes suggestions
on how to bring the ratio back in line in the future. In some cases, these discussions with
management have been the basis for management consulting engagements. Discuss the
major strengths and shortcomings in Morris’s use of ratio and trend analysis.
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