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# 8-16 Analytical Procedures Boynton, William C., & Johnson,

8-16 Analytical Procedures Boynton, William C., & XXXXX, XXXXX N. (2006). Modern Auditing:Assurance Services and the Integrity of Financial Reporting (8th ed.). Hoboken, NJ: Wiley.
Required
Calculate purchases, gross margin, inventory turn days, accounts receivable turn days, and accounts payable turn days for the years ended 20x2, 20x3, 20x4, 20x5.

Thie is what I have for quest 1

Purchases

COGS 2691-1025+1327=2993 purchase for 2002

COGS 2399-1327-1099=2171 purchase for 2003

COGS 2095+-1099-1003=2,161 purchase for 2004

COGS 1859+1003- 1027=1,871 purchase for 2005

Gross margin

COGS-Sales=Gross Margin

2002=2691-5638=

2003=2399-4623

2004=2094-4022

2005=1859-3905

Inventory Turnover days

Average inventory/DailyCOGS

2002=1025 +1327/2=1176/7.37=159.57

2003=1327+1099/2=1231/6.57=187.37

2004=1099+1003/2=1051/5.74=183.10

2005=1003+1027/2=1015/5.09=199.41

Account Receivable turnover days

2002=837+1335/2=1086/15.45=70.29

2003=1335+1121/2=1228/12.67=96.92

2004=1121+962/2=541.50/1.10=492.27

2005=962+822/2=892/10.70=83.36

Accounts Payable Turnover

2002=165+380/2=272.50/8.20=33.23

2003=380+225/2=302.50/6.78=44.62

2004=225 +201/2=113/5.68=19.89

2005=201+175/2=188/6.78=27.73

Describe the trends identified by performing analytical procedures in the gross operating cycle, the net operating cycle, and gross margin
If tolerable misstatement is \$45,000 for inventory, develop an expectation range for inventory turn days.
With respect to inventory, what might these trends indicate about the potential misstatement in inventory?

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Customer: replied 8 years ago.
Can you help me with the memo problem? Thanks
Please let me know the chapter and problem number of the memo problem and let see if I have it.

Thank you. :)
Customer: replied 8 years ago.

Bradley sent me a copy of his test of controls work that he did on sales transactions. (Please tell him to send his work to you, rather than me.) Based on what Bradley found, there looks to be some serious problems in Sales and A/R. You need to write a memo identifying and explaining the significance of the qualitative features indicated by these deviations. Some things you may want to think about:

1. If the control performance were uniform for the year, the deviations would be evenly distributed by month.
2. Apollo Shoes faced financial problems in the fourth quarter of the year.
3. Sales transactions with missing bills of lading suggest improperly recorded sales.
4. December is the month when deviations overstating sales can have the most effect on the financial statements.
5. The company reports financial results each calendar quarter ending in March, June, September, and December.
6. Lack of credit approval for sales generally suggests the company might experience collection problems.
7. Errors in billing customers generally might be expected to be a mixture of overcharges and undercharges to the customers.
8. For customer overcharges, what was the average delay between the invoice date and the date a credit memo was entered giving the customer credit to correct the mistake?
9. Can you find any qualitative characteristics not signaled by these indicators?

Because of the problems noted, I don't think we can rely on Apollo's controls over revenue and accounts receivable. We will need to confirm most, if not all, of the accounts receivable balances. I suggest that you mail positive confirmations to those customers with accounts greater than \$1,000,000 and negative confirmations to those with balances less than \$1,000,000.

Also, I suggest that you ask Apollo's customers to verify total sales during the year. Normally, you wouldn't do this because it is difficult for the customers to confirm a year's worth of transactions. However, since there is a relatively small amount of sales transactions during the year, they should be able to confirm without a problem. I'll talk to you about it more later. I don't think you need to worry about customers with current zero balances.

For now, just write the memo to be placed in the accounts receivable workpapers (C-series) about the problems that Bradley found and their affect on our audit procedures (more extensive testing, positive confirmations, etc.).

This memo is part of the Apollo shoes case. Thanks

I am very sorry. I do not think I can help on this one. :(
Customer: replied 8 years ago.
Thanks