2.G4.J6.I8.A10.DMatching 7-3 (Appendix — 10 minutes)Consider the following key financial ratios used in analytical procedures:A.Quick RatioF.Inventory TurnoverB.Current RatioG.Asset TurnoverC.Debt to EquityH.Net Operating CycleD.Common Earning LeverageI.Return on AssetsE.Accounts Receivable TurnoverJ.Capital Structure LeverageREQUIRED: Using the corresponding letters from the list above, match the key financial ratios to the following stated purposes or interpretations. (Each item is used once and only once.)1.Measures the impact of financing decisions on earnings.2.Estimate of the number of days a company holds inventory, from purchase tosale.3.Estimate of the number of days it takes to collect accounts receivable.4.Recognizes that a company may use creditor financing to finance inventorypurchases.5.Measures the degree to which current liabilities are covered by current assets.6.Measures the impact of financing on the balance sheet.7.Estimates the protection afforded to short-term creditors by cash or near-cash assets.8.Measures the relationship between sales and total assets.9.Measures the extent to which a company is using its debt financing capacity.12
10.Measures profitability in relationship to the asset structure of the company.Answers — Matching 7-31.D3.E5.B7.A9.C2.F4.H6.J8.G10.IShort Answer 7-1 (5 minutes)Identify the four phases of a financial statement audit engagement and the applicability of GAAS to each phase.Answers — Short Answer 7-1There are four phases in an audit engagement. Generally accepted auditing standards apply to all of the phases. The categories of GAAS applicable to each are: 1.Client acceptance and retentionGeneral and field work 2.Planning the auditGeneral and field work 3.Performing audit testsField work 4.Reporting the findingsField work and reportingShort Answer 7-2 (5 minutes)Identify the three generally accepted auditing standards that apply to accepting an audit engagement. For each standard, indicate the primary means of complying with the standard.Answers — Short Answer 7-2The standards are:1.Technical training and proficiency. This is accomplished through education for entry into the profession, practical training and experience in auditing, and continuing professional education.2.Independence. This is met by acting with integrity and objectivity and avoiding relationships that may impair the auditor’s independence.
You've reached the end of your free preview.
Want to read all 17 pages?
- Fall '13