Waren Sports supplier Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Waren Sports supplier Case Solution

Description of analytical results:

According to ISA-520 Analytical Procedures, these are the procedures which identify inconsistencies or substantial misstatement in the financial statements. It can be carried out by evaluating financial information of the entity.Comparative statement of financial position is analyzed for the years of 2016-2017, which indicates that there is 2% reduction in accounts payable which is a good signal and there is 2% increase in federal tax payable because of the increased corporate tax rates prevailing in the country. Log-term loan and notes payable are surprisingly reduced by 8% which shows that a liability was due this year to be paid back. There is 23% reduction in the number and amount of common stock which indicates that the company might had repurchased the stock, decreased level of common stock is not a good signal to the market and investors and retained earnings are increased by 13% which may be due to increased profits and decreased dividend expense to a lessor number of shareholders.Moreover, there are noticeable increase in cash, accounts receivable and inventory levels which strengthens the company’s liquidity position.

While analyzing the income statement for year 2017 ended, it can be recognized that after cost of goods sold, the wages and salaries constitute a significant part of total expenses and then reducing the revenue accordingly. Gross profit margin is 32% and net profit margin is approx. 5%.

Areas with the highest risk of Material Misstatement:

From the perspective analytical review of income statement, we can conclude that the cost of goods sold are 67.78% of net revenue however the total operating expenses are 19.49% so there is a risk that company may place some of its cost of goods sold expense in the operating income and vice versa to recover the overall gross margin and net margin of the company. If this is the situation, then it is in contradiction of the accounting standards therefore will be considered as the misstatement/fraud as it does not present the fair view of the financial statements and the responsibility to present fair and true financial statement belongs to the management. If the bonuses of the management are allied with the gross or operating margins of the company, then the said risk will increase by the weighty level. Moreover, if we evaluate the division of these parts on the basis of materiality then we will determine all particulars of the cost of goods sold and advertising expense, wages and salaries rent, repairs and utilities, depreciation and other operating expenses from total operating expenses are above the predefined level. Therefore, auditors have to gain adequate and applicable audit evidences for these accounts.

The analytical review of balance sheet represents that the cash balance of the company increases by approximately 12% in 2017. In a sport supplying company an increase in cash by 12% will be considered as significant due to this increase, the risk that the company may use this as a means to convert black money into white money (money laundering) has been increased. Therefore, the risk of substantial misstatement due to fraud is high in this account balance. Besides the reported balances of receivables, inventories and marketable securities are above then the materiality threshold. From these accounts marketable securities are one of item therefore risk of material misstatements is high in this account. Along with this the fixed assets of the company decrease by approximately 27% the decrease may be due to the impairment and if this is the case then the impairment should be recorded separately at the face of the income statement of the company but income statement of the Company does not represent any such item therefore the risk of substantial misstatement due to error is high in respect of this account.

Extent of Reliance On the work of internal auditors

Internal auditors are employees of the engagement entity who on the basis of internal financial and non-financial information perform continuous internal audit. An internal audit department of any corporation is one of the key departments which operates and works throughout the fiscal year as liberated, goal declaration and referring activity intended to assess and supplement value to the success factors. Being a systematic, disciplined and organized approach, process of internal auditing is a reagent for enhancing organization’s governance, risk administration and provides intuition and sanctions grounded on analyses and facts progressions.

External auditors do rely on internal auditor’s work to the extent that the objectivity, compliance and degree or risk that is considered material by internal function can be questionable and their results may not fully free of bias and window dressing. There is an intrinsic risk on the magnitude to which internal auditor’s neutrality, proficiency and effort carried out affects external auditor’s verdict to depend on them. With the knowledge of internal auditor, the external auditor can gain valuable supplementary insights into the firm and the expertise of internal auditor can also be utilized in audit processes.

When can internal auditors be relied for information and work by external auditors

Define where it is forbidden by law and regulation to get straight backing from internal auditors.
Appraise the significance and existence of threats to neutrality of the internal auditor.
Evaluate the proficiency of internal auditor’s work performed.
During the conduct, external auditor has to review, direct and supervise the work of internal auditor bearing in mind that they are not independent of the entity.

Timing of field work and Reporting deadlines

Identifying the timing and schedule of work largely depends on the nature of work and processes involved. It can be forecasted and decided at the planning stage but exact timing and schedule may be different from the one initially planned. This is due to factors such as third party’s confirmations and matters requiring top level management’s consent and approval. For instance, how long the creditor will take to confirm the balance due at the date with the balance in record. Sometimes they take long to respond the confirmations and the work gets delayed.

Similarly, the reporting deadlines are set prior to the conduct of audit procedures between the management and auditor so that the auditor makes sure to schedule and prioritize all tasks needed to perform and manage accordingly. Some tasks would may take longer time than expected and planned because of their volatile nature or depending on another task to be first performed. Auditor has to collect all evidences, third party confirmations, management approvals and other supporting material before the reporting deadlines and has to prepare a qualified or unqualified report on the basis of his professional judgment and evidences gathered.

Waren Sports supplier Harvard Case Solution & Analysis

Test of controls

This type of control is an audit technique to check the usefulness of a control devised by a customer firm to avert or spot substantial misleading statements Contingent on the results of this test, auditors may elect to depend on a client's organism of controls as a part of their auditing accomplishments. However, if the test exposes that controls are weak and inappropriate, the auditors will boost their use of substantive testing, which generally upsurges the charge of an audit. These are few general orderings of tests of controls:

Re-performance means that in order to check the efficiency of a control placed by the entity, the audit makes a new transaction or enter new data.
Observation means that the auditor may check the process of data flow and in particular the control elements of any process.
Inspection means that the auditor may reassure the business documents for signatures, stamps and check marks which may indicate any lacking in them.............................

This is just a sample partial work. Please place the order on the website to get your own originally done case solution.