CE13+Solution (1).docx - 1 Name(s In-Class Exercise 13...

Name(s):______________________________________________________________________
In-Class Exercise 13
Leslie Fay, Management Assertions & Audit Evidence, Analytical Procedures – Part II
You may complete this exercise by yourself or with up to two other students: i.e., by yourself or
in groups of two or three students. Please respond to the questions below succinctly and
coherently – think about it or talk it over before you write it down. Please try to write legibly.
Ratios, industry average, common-sized financial statements, and equations are presented below.
Industry averages
In comparing Leslie Fay’s 1991 financial ratios with the industry norms, there
are not many significant differences. Liquidity ratios were stronger than the
industry average, while their solvency ratios were generally a little weaker.
Profitability margins are generally in line with industry averages. The key
differences between Leslie Fay and the industry norms is in inventory and
receivables. Both sets of ratios were far “worse” than the industry; inventory
is 57% “older” and receivables are 22% “older” than the industry.
1. What do the ratios presented above tell us about a company in general
(discuss liquidity, solvency, profitability, and turnover)?
2. Do any of Leslie Fay’s ratios discussed above concern you, as an auditor?
Please elaborate.
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