Carinal Ltd. specializes in the development of electronic components within quite a competitive environment causing concerns for marketing and pricing. Its non-current assets primarily include IT software, property, and investments, and there have been additions to these during the year. As audit manager, you are conducting a preliminary analytical review and associated risk analysis for this client for the year ended June 30 2022. You have been presented with the following draft financial information about Carinal with incomplete ratios and percentages calculation. INCOME STATEMENT Year ended June 30 2022 2021 $'000 $'000Revenue 22450 18675Cost of sales 8475 8055Gross Profit 13975 10620Distribution costs 4245 3120Administrative expenses 1276 2134Selling expenses 5555 512Profit from operations 2899 4854Net interest receivable 1245 495Profit before tax 4144 5349Income tax expense 2145 2345Net profit 1999 3004Retained profits 1325 2105Dividends paid $1250 $1049Accounting ratios and percentagesEarnings per share 0·54 1·25Performance ratios include the following: Gross margin ((Gross profit/revenue) ? ?Expenses as a percentage of revenue: Distribution costs ? ? Administrative expenses ? ? Selling expenses ? ?Operating profit as a percentage of revenue ? ?Part ARequired1. Using the information above, complete the calculation of accounting ratios and percentages and comment briefly on the performance of the company for the two years. 2. By reference to requirement 1, identify the areas that are subject to increased audit risk and describe the further audit work you would perform in response to those risks.Part BBy reference to Part A:1. What is the purpose of using analytical procedures on the client’s performance measurement system?2. What are some of the key factors that impact group interaction in an audit assignment?
Carinal Ltd. specializes in the development of electronic components within quite a
competitive environment causing concerns for marketing and pricing. Its non-current assets
primarily include IT software, property, and investments, and there have been additions to
these during the year.
As audit manager, you are conducting a preliminary analytical review and associated risk
analysis for this client for the year ended June 30 2022. You have been presented with the
following draft financial information about Carinal with incomplete ratios and percentages
calculation.
INCOME STATEMENT
Year ended June 30
2022 2021
$'000 $'000
Revenue 22450 18675
Cost of sales 8475 8055
Gross Profit 13975 10620
Distribution costs 4245 3120
Administrative expenses 1276 2134
Selling expenses 5555 512
Profit from operations 2899 4854
Net interest receivable 1245 495
Profit before tax 4144 5349
Income tax expense 2145 2345
Net profit 1999 3004
Retained profits 1325 2105
Dividends paid $1250 $1049
Accounting ratios and percentages
Earnings per share 0·54 1·25
Performance ratios include the following:
Gross margin ((Gross profit/revenue) ? ?
Expenses as a percentage of revenue:
Distribution costs ? ?
Administrative expenses ? ?
Selling expenses ? ?
Operating profit as a percentage of revenue ? ?
Part A
Required
1. Using the information above, complete the calculation of accounting ratios and
percentages and comment briefly on the performance of the company for the two
years.
2. By reference to requirement 1, identify the areas that are subject to increased audit
risk and describe the further audit work you would perform in response to those risks.
Part B
By reference to Part A:
1. What is the purpose of using analytical procedures on the client’s performance
measurement system?
2. What are some of the key factors that impact group interaction in an audit
assignment?
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