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Consider the validity of the Tableau output provided by your information technology team. Is the sales frequency distribution table analysis valid and reliable? Why or why not? Compare the sales...

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  1. Consider the validity of the Tableau output provided by your information technology team. Is the sales frequency distribution table analysis valid and reliable? Why or why not?

  2. Compare the sales mix from 2025 to 2024. How does sales mix contribute to consideration of the risk of material misstatement?

  3. During inquiry with the vice president of sales, your engagement team learned that the largest customer purchases only metal-on-metal knee products, and that these purchases account for approximately 35% of all sales of these products.
    This customer has recently requested significant modifications to their sales order contract and credit terms because of possible bankruptcy concerns. How might this information, combined with the sales frequency distribution table, contribute to the risk of material misstatement?

  4. The technology team has provided a scatterplot of sales for the metal-on-metal knee (cobalt chrome) product for the month of October. The technology team has identified certain points on the diagram. Explain whether each of the identified points on the diagram would need further investigation, or if they should be included in normal substantive testing for sales.

  5. Use the Ortho, Inc. datasets to create additional descriptive analytics. Consider creating a cross tabulation analysis of sales by product description and/or sales by site code. These descriptive statistics provide insight into the company's net sales for the year under audit.


Write a memo to Ortho. Inc. audit files that includes vour analvsis and interprAs ion of your analvsis. Be sure to write from the point-of-view of external auditors analyzing the sales by product data.

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Answered 1 days After Nov 20, 2023

Solution

Prince answered on Nov 21 2023
22 Votes
Memorandum
To: Ortho Inc. Audit Files
From: External Audit Team
Date: November 20, 2023
Re: Analysis and Interpretation of Sales Frequency Distribution Table
This memo provides an analysis and interpretation of the sales frequency distribution table provided by the information technology team. It evaluates the validity and reliability of the analysis, compares the sales mix between 2024 and 2025, discusses how sales mix contributes to risk of material misstatement, analyzes the potential impact of the largest customer's contract modifications, and examines points of interest on the scatterplot for the metal-on-metal knee product. Additional descriptive analytics are provided through cross tabulations of sales by product description and sales by site code.
1. Validity and Reliability of Sales Frequency Distribution Analysis
The sales frequency distribution table summarizes transaction counts and sales revenue by product for 2024 and 2025. To evaluate validity, we considered whether the analysis measures what it intends to measure. The goal is to analyze sales trends across products, which this table achieves by showing transaction volumes and sales dollars for each product category. However, the analysis could be improved by including additional years of data to identify trends over a longer period. The cu
ent two-year analysis may not fully capture evolving sales patterns.
For reliability, we evaluated whether the analysis produces consistent results under consistent conditions. The data originates from the company's information system, which provides transaction-level data. The system should reliably capture all sales activity. However, as a decentralized organization, the company relies on self-reporting of sales from each regional site. E
ors or inconsistencies in data collection across sites could impact reliability. Additional analytics at the site level would help evaluate data consistency.
2. Sales Mix Comparison Between 2024 and 2025
The sales mix shows moderate changes from 2024 to 2025. The largest product category, metal-on-metal knee (titanium), increased from 23.4% of revenue in 2024 to 24.2% in 2025. The next two largest categories, metal-on-metal knee (cobalt chrome) and metal and polyethylene knee,...
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