L9 Notes_Part_9 - change in credit terms, return policy or...

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1) Inventory increased due to: obsolete inventory, price hike has caused a reduction in sales, anticipation of rise in input prices, company purchased input in bulk (strikes, anticipated unusual demand) items belonging in cost of goods sold were included in inventory returns have been reentered into inventory though not resalable change in inventory valuation (LIFO to FIFO) fictitious inventory change in shipping arrangement acquired company with high margins and a lot of inventory One great money making product and the others don’t sell as well as in the past Oligopolistic industry. Price war is over. Prices are up but sales volume is down. Gross margin increased due to: sales overstatement (fraud, errors, underreported returns or discounts) different product mix greater sales volume and the utilization of unused capacity new product has a higher profit margin lax credit policies lower cost input (discounts on bulk purchases at year end, economies of scale, new technology)
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Unformatted text preview: change in credit terms, return policy or collection policy (if bad debts is a sales contra account) awarded a government contract with high margins large volume of sales at year end stuffing distribution channels economic trend, loss of competitors one large related party sale close to year end What should the auditor do? physically examine inventory assure a good inventory cutoff inquire as to the reasons for the change;perform analytical review procedures by product line; confirm receivables Analysis and Inquiry Analytical procedures (either planning, substantive or review) frequently raise questions that lead to inquiry of client personnel It is especially important that you NOT suggest answers as part of the question Have the client to explain the discrepancies you found in your analytical procedures Silence is golden applies here, dont fill in the silence with a suggested reason....
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This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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L9 Notes_Part_9 - change in credit terms, return policy or...

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