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Ratios can be used in the following ways: -
1. To evaluate the ability of a firm to meet short-term maturing financial obligations as and when they fall due (liquidity ratios).
2. Ratios indicate the ability of a firm to generate returns/ from sales & investments (profitability ratios).
3. Ratios of a given year are compared with similar ratios of past years to determine the performance of a firm over time. This is called trend/time series analysis.
4. Ratios can be compared with those of competitors to determine whether the firm out-performed competitors. This is called cross-sectional analysis.
5. Efficiency ratios indicate the efficiency with which the firm is utilizing its assets or resources at its disposal to generate sales revenue.
6. Ratios of a given year of a firm can be compared with the average industrial performance or norm. This is called industrial analysis.
7. Ratios indicate the extent with which the firm has financed its assets with externally borrowed fixed return capital (gearing ratios).
8. Prediction of bankruptcy. A combination of selected ratios can be used to predict the possibility of insolvency of a firm. The combined figure of these ratios is called Z- score which was developed by Altman.
Judiesiz answered the question on May 22, 2018 at 12:38
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(a) Internal controls over non-current assets are designed to ensure the
orderly and efficient running of the business, adherence to management
policies, safeguarding of assets, the prevention of fraud and error and
the completeness and accuracy of the accounting records.
Required:
List the internal controls that a small printing company with office
equipment, motor vehicles and plant and machinery should have in place
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(b) Audit sampling is a technique for drawing conclusions about the
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Internal and external auditors use it for both tests of controls, and
substantive testing.
Required:
Describe the following:
(i) Judgement sampling and statistical sampling;
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Date posted: April 3, 2018. Answers (1)
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and you have been asked to co-operate with internal audit to keep total
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some of the work already performed by internal audit.
The internal auditors provide the following services to the company:
(i) A cyclical audit of the operation of internal controls in the company’s
major functions (operations, finance, customer support and
information services);
(ii) A review of the structure of internal controls in each major function
every four years;
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During the current year, the company has gone through a major internal
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Required:
a) Explain the extent to which your firm will seek to rely on the work of
the internal auditors in each of the areas noted above.
b) Describe the information your firm will seek from the internal auditors
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c) Describe the circumstances in which it would not be possible to rely on
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The senior partner of your audit firm has...(Solved)
You are auditing the financial statements of Newbridge Trading plc, for the year-ended 31 October 1997.
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„Checking sales ledger cash received after the year-end to determine the realisability of debtors at the year-end and highlight doubtful debts.‟
The detailed audit work was completed on Friday 5 December 1997. It is proposed that:
a) The audit report will be signed on Friday 19 December;
b) The financial statements will be sent to shareholders on Monday 5 January 1998; and
c) The company‟s annual general meeting will be held on Wednesday 28 January 1998.
Required:
a) Consider the auditor‟s responsibilities for detecting material subsequent events in the periods:
i) 31 October to 5 December 1997 ii) 5 December to 19 December 1997 iii) 19 December 1997 to 5 January 1998
iv) 5 January 1998 to 28 January 1998
v) After 28 January 1998
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Date posted: March 28, 2018. Answers (1)
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Date posted: March 28, 2018. Answers (1)
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Required:
a) Briefly, explain how Smith & Co. Associates may resign from its appointment before the next annual general meting.
b) How any a casual vacancy arising from the resignation of present auditors be filled and what procedures are necessary before the company‟s next annual general meeting at which the appointment will be presented for ratification?
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Date posted: March 28, 2018. Answers (1)
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(a) Explain why auditors carry out circularisation of debtors.
(b) Distinguish between „positive? and „negative? debtors circularisation procedures.
(c) Describe in detail the work you would carry out in scrutinizing the replies to the debtors circularisation and in confirming whether the debtors balances are collectable in the following situations:
i. where the debtor does not agree with the balance and states a difference; (6 marks)
ii. where the debtor reports that he cannot confirm the balance
iii. where no reply is received from the debtor
Date posted: March 28, 2018. Answers (1)