Analyze the Balance Sheet and Income Statement for ABC Company. Come up with 6 q

Question

Analyze the Balance Sheet and Income Statement for ABC Company. Come up with 6 questions for the client that you would like to dig deeper into based on the change from 2016 to 2017. For each of the 6 questions, list audit steps you would take to check for material misstatements and would you allow you to eventually sign off on the audit report.

Capitalization threshold = $5,000 +

Balance Sheet 12/31/2017 and 12/31/2016 Assets Liabilities 12/31/2017 12/31/2016 12/31/2017 12/31/2016 Current Assets Current Liabilities Cash           60,000         100,000 Notes payable             2,500             4,000 Petty Cash             5,000             1,000 Accounts payable           50,000           80,000 Accounts Receivable - net           40,000           65,000 Wages payable           35,000           42,000 Inventory           10,000           12,000 Interest payable             3,000             3,200 Supplies             3,000             2,500 Taxes payable                 500             1,000 Prepaid Insurance           12,000             4,500 Unearned revenues             1,500             1,300 Total current assets         130,000         185,000 Total current liabilities           92,500         131,500 Property, plant and equipment Long-term liabilities Land           30,000           30,000 Notes payable           12,000           22,000 Land improvements             4,500             4,000 Bonds payable           75,000         100,000 Buildings           65,000           65,000 Total long-term liabilities           87,000         122,000 Equipment           26,000             8,000 Less: accumulated deprec         (25,000)         (20,000) Total liabilities         179,500         253,500 Prop, plant, and equip-net         100,500           87,000 Intangible assets Stockholders' Equity Goodwill           15,000           15,000 Common Stock             5,000             5,000 Trade names           10,000             3,000 Retained Earnings           74,000           34,500 Total intangible assets           25,000           18,000 Total Stockholders' equity           79,000           39,500 Other assets             3,000             3,000 Total assets         258,500         293,000 Total liabilities and stockholders' equity         258,500         293,000

Explanation / Answer

Audit questions to ask ABC companies Management for analysis -

1. Nature of company and various types of revenue it is generating. List of various locations it is operating from.

2.Any merger/acquisition/sale /disposal of investment / unit/subsidiary.

3.Crediors and debtors ageing for year 2016 and 2017 to check creditability and liquidity position of company.

4. Any specific reason for increase in net income ratio by 10% as compared to previous yera - 2016.

5.Resons for Increase in office supplies expenses by 200% during year 2017 as compared to 2016. Further Bifurcation of Office supplies expenses to understand nature.

6.Goodwill valuation method followed by company. Any impariement done to goodwill balance.

7.Any leasehold agreement endered by Company or assets given on lease to check lease accounting.

Audit steps to check material misstatement :

I would allow to signoff the audit report once all procedure relating to audit and confirmations and analysis is done and which gives us assurance that there is not material misstatement.

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