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L9 Notes_Part_8 - 4 Actual to nonfinancial information ex...

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Different Comparisons 1. Industry averages to client balance, use of economic data a. strengths window on competitiveness, market share b. weaknesses (size, conglomerates, misstatement or random fluctuation, historical costs or age differ, different methods, circumstantial evidence needs corroboration, nonsynchronous reporting periods different fiscal Y/E June 30 for Australia Dec 31 in US.) Point being - Industry comparisons are quite useful but must be interpreted with caution. 2. Actual to budget a. budget - weaknesses? negotiated? idealistic? manager attempts to manipulate actual; consequently, zero percentage change might be worth investigating 3. Actual to prior periods a. balances typically adjusted for known changes - ignores relationship among accounts - ignores changes in business or industry b. ratios - summarizes in one number
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Unformatted text preview: 4. Actual to nonfinancial information ex: Cable Co. Revenue = No. of subscribers X the published rate ex: Hotel revenue = # of rooms X occupancy rate X rate per room. ex: Floor space used to sales 5. Actual to other financial statement accounts ex: sales to sales commissions, sales discounts and allowances, SR&A ex: Notes Payable to interest expense Industry Comparisons Sources of Measurement Errors P2: The following calculations were made as of December 31, 2007 from the records of the Aladdin Products Supply Company, a wholesale distributor of cleaning supplies. 2007 2006 2005 2004 Gross Margin as a percentage of sales 26.4% 22.8% 22.7% 22.4% Inventory turnover (in days) 56.1 47.9 48.3 47.1 List several logical causes of the changes in the two ratios. What should the auditor do to determine the actual cause of the charges?...
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L9 Notes_Part_8 - 4 Actual to nonfinancial information ex...

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