The following information shows the past two periods of results for a fictional company, Jones Manufacturing, and a comparison with industry data for the same period: ANALYTICAL DATA FOR JONES MANUFACTURING Industry Current Average as Prior Period Percent Period XXXXXXXXXX Percent Percent Percent of XXXXXXXXXXomitted) of Sales omitted) of Sales Change Sales Sales $10,000 100 $11,000 100 10 100 Inventory $2,000 20 $3,250 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX Cost of goods sold $6,000 60 $6,050 55 XXXXXXXXXX XXXXXXXXXX Accounts payable $1,200 12 $1,980 18 65 XXXXXXXXXX Sales commissions $500 $550 10 Not available Inventory turnover 6.3 4.2 (33) XXXXXXXXXX Average number of 39 48 23 36 days to collect Employee turnover 5% 8% 60 Return on investment 14% XXXXXXXXXX% XXXXXXXXXX Debt/Equity 35% 60% 71 30 a. From the preceding data, identify potential risk areas and explain why they represent potential risk. Briefly indicate how the risk analysis should affect the planning of the audit engagement. b. Identify any of the above data that should cause the auditor to increase the level of professional skepticism.

The following information shows the past two periods of results for a fictional company, Jones Manufacturing, and a comparison with industry data for the same period: ANALYTICAL DATA FOR JONES...

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The following information shows the past two periods of results for a fictional company, Jones Manufacturing, and a comparison with industry data for the same period:

ANALYTICAL DATA FOR JONES MANUFACTURING

						Industry
			Current			Average as
	Prior Period	Percent	Period XXXXXXXXXX	Percent	Percent	Percent of
	XXXXXXXXXXomitted)	of Sales	omitted)	of Sales	Change	Sales
Sales	$10,000	100	$11,000	100	10	100
Inventory	$2,000	20	$3,250	XXXXXXXXXX	XXXXXXXXXX	XXXXXXXXXX
Cost of goods sold	$6,000	60	$6,050	55	XXXXXXXXXX	XXXXXXXXXX
Accounts payable	$1,200	12	$1,980	18	65	XXXXXXXXXX
Sales commissions	$500		$550		10	Not available
Inventory turnover	6.3		4.2		(33)	XXXXXXXXXX
Average number of	39		48		23	36
days to collect
Employee turnover	5%		8%		60
Return on investment	14%		XXXXXXXXXX%			XXXXXXXXXX
Debt/Equity	35%		60%		71	30

a. From the preceding data, identify potential risk areas and explain why they represent potential risk. Briefly indicate how the risk analysis should affect the planning of the audit engagement.

b. Identify any of the above data that should cause the auditor to increase the level of professional skepticism.

Answered Same Day Dec 25, 2021

Solution

Robert answered on Dec 25 2021

129 Votes

The following information shows the past two periods of results for a fictional
company, Jones Manufacturing, and a comparison with industry data for the
same period:
ANALYTICAL DATA FOR JONES MANUFACTURING
Industry
Cu
ent Average as
Prior Period Percent Period (000 Percent Percent Percent of
(000 omitted) of Sales omitted) of Sales Change Sales
Sales $10,000 100 $11,000 100 10 100
Inventory $2,000 20 $3,250 29.5 57.5 22.5
Cost of goods
sold
$6,000 60 $6,050 55 0.83 59.5
Accounts
payable
$1,200 12 $1,980 18 65 14.5
Sales
commissions
$500 $550 10 Not
available
Inventory
turnover
6.3 4.2 (33) 5.85
Average number
of
39 48 23 36
days to collect
Employee
turnover
5% 8% 60
Return on
investment
14% 14.3% 13.8
Debt/Equity 35% 60% 71 30
a. From the preceding data, identify potential risk areas and explain why they
epresent potential risk. Briefly indicate how the risk analysis should affect the
planning of the audit engagement.
The Potential risk areas...

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The following information shows the past two periods of results for a fictional company, Jones Manufacturing, and a comparison with industry data for the same period: ANALYTICAL DATA FOR JONES...

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