Question
8-16 (Analytical procedures) In audit planning the audit of Circuits Technology, Inc. (CTI). CTI
resells, installs, and provides computer networking products (client software, gateway
hardware and software, and twinax hardware) to other businesses. Figure 8-14 provides
some summary information from CTI’s financial statements.
Required
a. Calculate purchases, gross margin, inventory turn days, accounts receivable turn days,
and accounts payable turn days for the years ended 20x2, 20x3, 20x4, 20x5.
b. Describe the trends identified by performing analytical procedures in the gross operating
cycle, the net operating cycle, and gross margin.
[342] PART 2 / AUDIT PLANNING
Figure 8-13 ¦ Selected Financial Information ($000)
X1 X2 X3 X4 X5
Building supply revenues $ 90,100 $ 99,380 $ 117,468 $ 137,085 $ 160,800
Lumber brokerage revenues $ — $ — $ 45,021 $ 63,480 $ 90,141
———— ———— ————– ————– ————–
$ 90,100 $ 99,380 $ 162,489 $ 200,564 $ 250,941
———— ———— ————– ————– ————–
Inventory turn days
c. If tolerable misstatement is $45,000 for inventory, develop an expectation range for
inventory turn days.
d. With respect to inventory, what might these trends indicate about the potential misstatement
in inventory?
Figure 8-14 ¦ CTI Selected Financial Information ($000)
20x1 20x2 20x3 20x4 20x5
Accounts receivable, net $ 837 $ 1,335 $ 1,121 $ 962 $ 822
Inventory $ 1,025 $ 1,327 $ 1,099 $ 1,003 $ 1,027
Accounts payable $ 164 $ 380 $ 225 $ 201 $ 175
Sales $ 3,780 $ 5,638 $ 4,623 $ 4,022 $ 3,905
Cost of sales $ 1,812 $ 2,691 $ 2,399 $ 2,095 $ 1,859
———– ———– ———– —–—— ———–
Gross margin $ 1,968 $ 2,947 $ 2,224 $ 1,927 $ 2,046

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Optional Information:
Level/Year: 4th-undergrad
Subject: auditing

Already Tried:
I have the calculations but I need to know what is the analytical trend for the gross Operating Cycle, the Net Op Cycle and gross margin.
Also if tolerable misstatement is $45,000 what is the expectation range for Inv. turns and what does this reflects as potential misstatement in inventory?