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# Examine the terms of the bonus agreement and of any

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Examine the terms of the bonus agreement and of any announcement or other undertakings with staff regarding the possible payment of the bonus. 1.2 Statement of financial position 1,2,1 Receivables 9 months to 30 June 2010 Receivables days = (2,400/21,500) x 270 days = 30 days

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TI BR – Advanced Stage – July 2010 © The Institute of Chartered Accountants in England and Wales 2010 22 9 months to 30 June 2009 Receivables days = (4,300/38,400) x 270 days = 30 days Y/e 30 Sept 2009 Receivables days = (1,000/41,600) x 360 days = 8.7 days Alternatively use last quarter: Receivables days = (1,000/3,200) x 90 days = 28 days Superficially it may seem that receivables have fallen substantially from £4.3m to £2.4m. On closer inspection however the reduction is in line with the fall in sales and the receivables days are more or less the same. Conversely, it may seem the receivables at 30 September 2009 are very low using the first calculation of 8.7 days. However receivables reflect sales in the most recent month(s) before the statement of financial position is drawn up, rather than the average for the year. Given the seasonality of PGA then the final quarter sales are low and therefore the year end receivables are expected to be low. This is reflected in the alternative calculation of 28 days. 1.2.2 Inventories Superficially it may seem there has been little movement in inventories and thus it is low risk. However the inventory days shows significant movement: 9 months to 30 June 2010 Inventories days = (3,500/22,200) x 270 days = 43 days 9 months to 30 June 2009 Inventories days = (3,500/31,200) x 270 days = 30 days The significant increase in inventory days shows that inventory remained constant but the expectation was that it should have fallen as the cost of sales has reduced through a lower level of commercial activity. Audit work Analytical procedures shows a low level of risk for receivables as the receivables days (30 days) is consistent both with the previous period and with the credit terms extended. Inventories are more concerning as we would have expected them to fall and they have not. The key tests are to look at older inventory to see if there is a problem with quality, settlement or ability to sell. It may also be worth looking at whether there has been a large increase in finished goods (eg cancelled orders in a recession). If this is the case, then an impairment of such inventories should be considered.
TI BR – Advanced Stage – July 2010 © The Institute of Chartered Accountants in England and Wales 2010 23 Financial reporting issues Revenue There is a risk from revenue recognition policy as it may not be appropriate to record the sale of garage doors until the installation complete unless two elements are separable. Foreign currency translation

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Examine the terms of the bonus agreement and of any...

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