Curtin Business School

School of Accounting

Accounting (Auditing) 300

Unit Outline Semester 1, 2006
Unit Index Number

10989

Hours per Week

Weekly Tuition Pattern
Credit Value

3 hours
1.5 hour lecture and 1.5 hour tutorial
25 credits

Pre-requisites

Accounting 260 or Accounting for Business and

Society 261

Unit Controller

Joe Christopher

Unit Controllers office

407.431

Unit Controllers email

joe.christopher@cbs.curtin.edu.au

Contact Telephone Numbers

9266 2006

School Telephone & Fax Numbers

9266 7295 (tel) or 9266 7196 (fax)

Website for Unit Materials

http://elearn.cbs.curtin.edu.au

Student Consultation Times

Available from the school office

IMPORTANT NOTICE
Accounting (Auditing) 300 is a significant unit. If you fail it twice, your course may be terminated.
The Unit Outline (this document) gives the student important information about the unit, aims,
outcomes, syllabus, materials, timetable, program and assessment.
Note that important general information including policies, expectations, examinations, copyright,
referencing, academic misconduct, assistance for communication skills, guidelines for assessment and
CV development is available in the CBS Student Handbook.
February 2006
CRICOS provider code 00301J

Page 1 of 20

UNIT INFORMATION..............................................................................................................3
1.
2.
3.
4.
5.
6.
7.
8.
9.

Aims...................................................................................................................................................................
Outcomes..........................................................................................................................................................
Syllabus.............................................................................................................................................................
Materials...........................................................................................................................................................
Timetable of Classes.........................................................................................................................................
Program.............................................................................................................................................................
Assessment.......................................................................................................................................................13
General Information.......................................................................................................................................16
Supplementary Instructions and Materials..................................................................................................16

Page 2 of 20

UNIT INFORMATION
1.
Aims
The purpose of the unit is to introduce students to auditing, with the emphasis on practical
auditing concepts, the auditor's decision-making processes and the appropriate audit
procedures auditors follow in different circumstances. The theme of the course is the external
audit of reporting entities, from initial planning to final reporting.
We will begin the course by examining the audit process in an overview format and we will
regularly return to this overview to identify the stage of the audit process we are examining.
A significant part of this course is spent examining the audit planning process, which is the
most important aspect of the audit. To this end we will examine a number of case studies by
analysing the financial statements and identify the key risk areas from the auditors
perspective.
This is not very different from the financial statement analysis studies you have completed in
other areas of your degree. What is different is how we use this information in terms of the
audit emphasis. Remember, auditors are not responsible for preparing the accounting
information (i.e. the financial statements). Their job is to audit the financial statements
with a view to providing an audit opinion in accordance with Australian Auditing
Standards.
Accounting (Auditing) 300 is a challenging unit and students should be mindful of the
following points:

The purpose of the lecture notes (available on Blackboard) is to give guidance on the
various topics covered in the course. As it is impossible to cover every aspect of a
topic in such notes, it is essential that students acquaint themselves thoroughly with a
topic by reading the relevant sections of the prescribed texts and other reference
material prior to attending the lectures.

The key to success in Accounting (Auditing) 300 is PRACTICE. Students will be

assisted in this process by considering many case studies that ask for the application of
auditing concepts. We recommend that students set aside a minimum of ten hours per
week to complete the readings, tutorial practice questions and assignments and to study
sufficiently to achieve the required level of understanding and competence in the unit.

2.
Outcomes
It is expected that students will develop their analytical and decision making skills by
applying auditing principles to practical problems. Students should, through active
participation in tutorial discussions, develop their communication skills. Students will, on
successful completion of this unit, have developed the professional skills of effective writing,
decision-making and team working.
2.1

Learning Outcomes

On successful completion of this unit you will have:

Increased awareness of the regulatory framework in which auditors operate,

Analyse financial information with a view to identifying key risk areas and their
impact on the audit approach,
Page 3 of 20

2.2

Determine the appropriate audit procedures; and

Identify the appropriate audit report for a given set of circumstances
Professional Skills Outcomes

Employers worldwide want graduates who have developed effective professional skills. The
CBS professional skills program includes communication (writing, interpersonal interactions
and cultural awareness, and presenting), critical and creative thinking (problem solving and
decision making), team work, IT literacy and information literacy.
On successful completion of this unit you will have:

3.

Developed ability to work with team members in tutorials and where necessary take
on leadership roles within the group.
Present your teams response to your peers.
Prepare a detailed group report.
Present a written group report in a concise and timely manner.
Make a decision in an environment that presents a number of plausible options and
justify that response.
Syllabus

Introduction:

Overview of assurance and auditing, the structure of the profession, ethics, independence and
corporate governance.
Audit Planning:

An understanding of the company audit process, knowledge of the business, the concepts of
materiality and audit risk, assessing business risk and its relationship with audit risk, control
risk and its relationship with the internal audit structure.
Test of controls and test of details.

The evaluation and testing of internal control systems, substantive audit testing of transactions
and balances.
Evaluating, concluding and reporting:

The finalisation of the audit and audit reporting.

For a detailed syllabus please refer to the semester program on page 6 to 12.
4.

Materials

4.1

Texts

1. Auditing and Assurance Services in Australia (3rd Edition), Gay, G. and Simnett,
R.,McGraw-Hill Irwin, Australia.(GS)
2. Auditing Handbook 2006, ICAA or CPA Australia, McGraw Hill or Prentice Hall,
Australia [AH]
3. Case Studies in Auditing & Assurance, Third Edition, Roebuck & Martinov Butterworths [RM]
NOTE: the above texts are essential for your studies of the unit. Do not seek advice from your
lecturer/tutor as to whether or not you should acquire the prescribed texts. Students choosing to use old
editions of the above texts do so at their own risk.

Page 4 of 20

4.2

References

In addition to the set textbook(s) the following references will be useful:

1. Arens, Best, Shailer & Loebbecke, Auditing in Australia: An Integrated Approach, 5th
Edition, Prentice Hall, 2002.
2. Schelluch, Topple, Jubb, Rittenberg and Schwieger, Assurance and Auditing,
Concepts for a Changing Environment, Thomson, 2004
3. Leung, Coram, Cooper, Cosserat, Gill, Modern Auditing and Assurance Services, 2nd
Edition, Wiley, 2004.
4. Messier. F.W, Auditing and Assurance Services- a systematic approach, 3rd Edition
McGraw Hill, 2003.
The auditing profession in Australia and internationally is currently undergoing significant
changes. Students are encouraged to read Australian and overseas accounting and business
journals, including Charter, Australian CPA, Accountancy, The Journal of Accountancy, The
Australian Accounting Review, Auditing: A Journal of Practice and Theory, The CPA
Journal, The Australian Financial Review, and so forth.
4.3

Other Resources

Power Point lecture slides are available on Blackboard.

5.

Timetable of Classes

Refer to website: http://www.cbs.curtin.edu.au for updates.

Page 5 of 20

6.

Program

Week

Lecture Topic

Pre-readings/references

Tutorial questions

1.

Introduction to Auditing

Overview of assurance and auditing

The structure of the profession

Auditor ethics, independence & corporate

governance

G&S (Text book)

Chapter 1

Chapter 2

Chapter 3
Auditing Handbook 2006

APS 1 section on definitions

APS 1.1 Conformity with Auditing Standards

APS 2 Terms of Engagements

AUS 106 Explanatory Framework for Standards on

Audit and Audit Related Services

AUS 108 Framework for Assurance Engagements

AUS 202 Objectives and General Principles

Governing an Audit of a Financial Report

AUS 206 Quality Control for Audits of Historical

Financial Information

AUS 210 Irregularities, Including Fraud, Other

Illegal Acts and Errors.

AUS 702 The Audit Report of a General Purpose

Financial Report

CPC Joint Code of Professional Conduct

AAA 6 Auditors Responsibilities in relation to

Reporting Contraventions of the Corporations Law

AGS 1004 Transitional Arrangements on Charges in

Audit Appointments Under the Corporations Act 2001

Unit Familiarisation
Handbook Familiarisation

Mid Semester
Exam

(No tutorial questions this

week)

Page 6 of 20

Week

Lecture Topic

Pre-readings/references

Tutorial questions

2.

Overview of elements of the financial

report audit process

GS (Text book)

Chapter 5

GS
Review Questions:
1.12, 1.15, 2.4, 2.5, 2.15.
Discussion Problems:
1.18, 1.27, 2.29, 2.30

Auditing Handbook 2006

AUS 202 Objectives and General Principles Governing an

Audit of a Financial Report

AUS 204 Terms of Audit Engagements

AUS 206 Quality Control for Audit Work

AUS 208 Documentation

AUS 210 Irregularities, Including Fraud, Other Illegal Acts

and Errors

AUS 302 Planning

AUS 402 Risk Assessment and Internal Controls

AUS 406 The Procedures in Response to Assessed Risks

AUS 502 Audit Evidence

AUS 510 Initial Engagements Opening Balances

AUS 518 Related Parties

AUS 520 Management Representations

AGS 1038 Access to Audit Working Papers

AUS 602 Using the Work of Another Auditor

AUS 606 Using the Work of an Expert

AUS 708 Going Concern

Mid Semester
Exam

Page 7 of 20

Week

Lecture topic

Pre-readings/references

Tutorial questions

3.

An understanding of the financial audit

report process, planning, knowledge of the
business and evaluating business risk

GS (Text book)

Chapter 5,6

GS

Auditing Handbook 2006

AUS 204 Terms of Audit Engagements
AUS 206 Quality Control for Audit Work
AUS 208 Documentation
AUS 302 Planning
AUS 402 Risk Assessment and Internal Controls
AUS 502 Audit Evidence
AUS 520 Management Representations
AGS 1038 Access to Audit Working Papers
AUS 510 Initial Engagements Opening Balances
AUS 512 Analytical Procedures
AUS 518 Related Parties
AUS 210 Irregularities, Including Fraud, Other Illegal Acts
and Errors

AUS 602 Using the Work of Another Auditor

AUS 606 Using the Work of an Expert

AUS 708 Going Concern

4.

Assessing business risk and materiality

GS (Text book)

Chapter 7
Auditing Handbook 2006

AUS 202 Objectives and General Principles Governing an

Audit of a Financial Report

AUS 210 Irregularities, Including Fraud, Other Illegal Acts

and Errors

AUS 218 Consideration of Laws and Regulations in an Audit of

a Financial Report

AUS 302 Planning

AUS 306 Materiality and Audit Adjustments

AUS 402 Risk Assessment and Internal Controls

AUS 406 The Auditors Procedures in Response to Audit Risks

Mid Semester
Exam

Review Questions:
3.8, 3.9,3.10, 3.11,
Discussion Problems:
3.18, 3.22, 3.23, 3.24

GS
Review Questions:
5.8, 5.11, 5.12, 6.11, 6.13,
Discussion Problems :
5.35, 6.18, 6.21, 6.27
Roebuck & Martinov
Case Study 1.2 (part 1 and
2)

Page 8 of 20

AUS 708 Going Concern.

Page 9 of 20

Week

Lecture topic

Pre-readings/references

Tutorial questions

5.

Control risk at the planning level and its

relationship with the internal control
structure.

GS (Text book)

Chapter 8

GS

Auditing Handbook 2006

AUS 402 Risk Assessment and Internal Controls

AUS 406 The Auditors Procedures in Response to Assessed

Risks

AUS 604 Considering the Work of Internal Auditing

AGS 1006 Expression on an Opinion on Internal Control

6.

Performing audit tests

GS (Text book)

Chapter 9

Mid Semester
Exam

Review Questions:
7.3, 7.4, 7.6, 7.7
Discussion Problems:
7.18, 7.19, 7.20, 7.21.
Appendix 3:
Questions 4.41

GS
Review Questions
8.6,8.7, 8.8, 8.10,

Auditing Handbook 2006

AUS 402 Risk Assessments and Internal Controls

AUS 604 Considering the Work of Internal Auditing

AUS 502 Audit Evidence

Discussion Problems:
8.11, 8.17, 8.19, 8.25

Page 10 of 20

Week

Lecture topic

Pre-readings/references

Tutorial questions

7.

Substantive test of transactions and

balances

GS (Text book)

Chapter 10

GS

Mid Semester
Exam

Review Questions:
9.10, 9.11, 9.14
Auditing Handbook 2006

AUS 202 Objective and General Principles Governing an Audit

of a Financial Report

AUS 208 Documentation

AUS 402 Risk Assessments and Internal Controls

AUS 502 Audit Evidence

AUS 504 External Confirmations

AUS 506 Existence and Valuation of Inventory

AUS 510 Initial Engagements Opening Balances

AUS 512 Analytical Procedures

AUS 516 Audit of Accounting Estimates

AUS 520 Management Representations

AUS 606 Using the Work of an Expert

.
10.

Discussion Problems:
9.18, 9.21, 9.26
Appendix 2
Questions 7.39 and 7.40

2 Tuition Free Weeks

Substantive test of transactions and

balances

GS (Text book)

Chapter 10
Auditing Handbook 2006

AUS 402 Risk Assessments and Internal Controls

AUS 502 Audit Evidence

AUS 504 External Confirmations

AUS 506 Inventories

GS

Mid Semester Exam

6th May 2006

Review Questions:
10.9, 10.10,
Discussion problems:
10.16, 10.17, 10.22
Roebuck & Martinov
Case 4.2

Page 11 of 20

Week

Lecture topic

Pre-readings/references

Tutorial questions

11.

Substantive test of transactions and balances

GS (Text book)

Chapter 10

GS

Auditing Handbook 2006

AUS 402 Risk Assessments and Internal Controls

AUS 502 Audit Evidence

AUS 504 External Confirmations

AUS 506 Inventories

12.

Audit Completion and Final Review of the

Audited Financial Report

GS (Text book)

Chapter 12
Auditing Handbook 2006

AUS 212 Other Information in Documents Containing

Audited Financial Reports

AUS 306 Materiality

AUS 508 Inquiry Regarding Litigation and Claims

AUS 512 Analytical Review

AUS 516 Audit of Accounting Estimates

AUS 518 Related Parties

AUS 520 Management Representations

AUS 706 Subsequent Events

AUS 708 Going Concern

Mid Semester
Exam

Review Questions:
10.11, 10.12.
Discussion Questions:
10.19, 10.20, 10.21, 10.25.

GS
Discussion problems:
10.18,10.24, 10.28, 10.30
Roebuck & Martinov
Case 2.1

Page 12 of 20

Week

Lecture topic

Pre-readings/references

Tutorial questions

13.

Auditors reporting obligations

GS(Text book)

Chapter 13

GS

Auditing Handbook 2006

AUS 212 Other Information in Documents Containing

Audited Financial Reports

AUS 702 The Audit Report on a General Purpose Financial

Report

AUS 704 Comparatives

AUS 710 Communication with Management on Matters

Arising from an Audit

AGS 1028 Uncertainty

AGS 1046 Responding to Questions at an Annual General

Meeting

AGS 1050 Audit Issues Relating to the Electronic

Presentation of Financial Reports

Audit and Assurance Alert No. 2 Auditors Responsibilities in

Relation to the Adequacy of Financial Records and Internal
Controls throughout the Year

Audit and Assurance Alert No. 4 Auditor Association with

Electronic Financial Reporting

Audit and Assurance Alert No. 6 Auditors Responsibilities in

Relation to Reporting Contraventions of the Corporations Law
14.

No Lectures

Mid Semester
Exam

Review Questions:
12.5, 12.7, 12.9, 12.10.
Discussion problems:
12.13, 12.14, 12.26

GS
Review Questions:
13.6, 13.7, 13.8, 13.11.
Discussion Questions:
13.13, 13.14,13.20, 13.23,
13.26 (part a only)

15.
16.
17.

Study Week (5 9 June 2006)

Exams Week 1
Exams Week 2

Page 13 of 20

7.

Assessment

7.1

Summary

To pass this unit you must:

Receive an overall grade of 5 or above and a mark greater than or equal to 50
No.

Assessment Activity

Percentage
%

Tutorial Assessment

15%

Mid Semester Exam

35%

Final Examination

50%

Total

100%

The assessments are due as per the Program above.

7.2

Assessment Details

7.2.1

Tutorial Assessment

Students are required to prepare typed answers for ALL tutorial questions. The tutor will,
on a random surprise basis, a minimum of three times, throughout the semester, take in
students tutorial answers for assessment. Assessment will be as per the criteria attached
Appendix 1. Please attach a copy of this appendix to your tutorial work each time it is
collected. Carefully note the following

The answers must be typed and should not exceed more than four typed pages in
total (at 12 font) for all tutorial questions. Work that is not typed will not be
accepted for assessment.
To be awarded a mark a student must both be present and have prepared his/her
typed answers to all questions for that particular tutorial.
Marks will only be awarded where, in the opinion of the tutor, a satisfactory attempt
was made to answer all questions. An attempt will be considered "satisfactory" if a
genuine and decent effort has been made to answer every aspect of every question.

At tutorials, the tutor will discuss with students the theoretical and practical issues relating to
the weekly tutorial assignment questions. As this subject is heavily dependent on judgment
and decision-making, students are encouraged to explore alternative approaches to set
problems and case studies. Students are therefore expected to participate actively in
discussions by asking questions and providing answers and should prepare themselves
accordingly.
Please note copies of tutorial solutions will not be available to students. If you wish to
attempt additional questions, which are highly recommended, you may review answers to
Page 14 of 20

these questions with the teaching staff.

7.2.2

Mid Semester Exam

Date:
Duration:
Topics covered:
Commencement time:
Venue: (for Curtin Campus only)
(Offshore Programs)
.

6th May 2006

2 hours plus ten minutes reading period
Topics covered during first 6 weeks
12.30pm
Elizabeth Jolley LT 210.101
TBA by respective offshore programs.

Note: Curtin Business School (CBS) policy does not permit the deferral of mid-semester
examinations.
7.2.3

Final Examination
Date:
Duration:
Topics covered

As advised by exams office

3 hours plus a ten-minute reading period
All semester topics will be examined

Students will be allowed to take their Auditing Handbook into the exam venue. The
handbook may be highlighted and tagged. It cannot be written in nor
include notes or additional sheets. Students in breach of this rule will
have their handbook removed and shall be subject to the universitys
policy on cheating. Students may also bring a silent, battery-operated,
non-programmable calculator into the examination.
Information about the format of the mid semester and final exam will be posted on
Blackboard during the semester. Students will not be given individual information about the
exam.
The date of the mid semester examination will be posted on Blackboard during the first three
weeks of Semester.
The Final Exam will be held during the formal examination period. It is your responsibility to
check the date and time of the Final Exam. Also, University policy disallows information
regarding the exam timetable to be given over the telephone. No final results are available
prior to the Board of Examiners meeting held after the exam.
7.3

Assessment Compliance Information

Due dates will be strictly adhered to. Extensions will be granted only in cases of
demonstrated urgent need and only where formally documented requests are made to the Unit
Controller. Where an extension has not been granted late submission will not be accepted. It
is your responsibility to check the due date.
Official release results for this unit are published on Oasis on the Curtin website .
https://prodweb3.curtin.edu.au/exrprd/results.search
7.4

Penalty for Late Submission of Assessments

Page 15 of 20

As stated in 7.3 above, late submission of assignments will not be accepted unless an
extension has been granted by the Unit Controller. A late submission will result in a mark of
zero.
It is the students responsibility to keep appropriate copies/backups of every assignment
submitted.

Page 16 of 20

7.5
Relationship of Assessment Activities to Learning Outcomes and Professional Skills
This table illustrates how the assessment activities relate to the assessment of the learning
outcomes and professional skills.
Outcomes
Learning Outcomes

Tutorials

1. Increased awareness of the regulatory

framework in which auditors operate
2. Analyse financial information with a view
to identifying key risk areas and their
impact on the audit approach
3. Determine the appropriate audit
procedures
4. Identify the appropriate audit report for a
given set of circumstances

Assessment Activity
Mid Semester Exam

Final Exam

Preparation and
discussion of
answers to tutorial
questions
Preparation and
discussion of
answers to tutorial
questions
Preparation and
discussion of
answers to tutorial
questions
Preparation and
discussion of
answers to tutorial
questions

Preparation for and

successful
completion of mid
semester exam
Preparation for and
successful
completion of mid
semester exam
Preparation for and
successful
completion of mid
semester exam
Preparation for and
successful
completion of mid
semester exam

Preparation for
and successful
completion of
final exam
Preparation for
and successful
completion of
final exam
Preparation for
and successful
completion of
final exam
Preparation for
and successful
completion of
final exam

Preparation of
answers to tutorial
questions
Participation in
the tutorials
Working through
problems in order
to arrive at
desired solutions
Working together
with group
members to
answer tutorial
questions
Working through
problems and
applying
knowledge learnt
to find desired
solutions

Preparation of
answers to exam
questions
Not applicable

Preparation of
answers to exam
questions
Not applicable

Working through
problems in order
to arrive at desired
solutions
Not applicable

Working through
problems in order
to arrive at desired
solutions
Not applicable

Working through
problems and
applying
knowledge learnt to
find desired
solutions

Working through
problems and
applying
knowledge learnt
to find desired
solutions

Professional Skills

1. Communication Written
2. Communication Verbal
3. Problem solving

4. Team work

5. Decision making

8.

General Information

Please see the CBS Student Handbook as described on Page 1 of this document for important
general information.
9.

Supplementary Instructions and Materials

See Appendices 1 to 3 below.

END OF UNIT INFORMATION

Page 17 of 20

APPENDIX 1
WEEKLY TUTORIAL WORK - MARKING GUIDE
This marking guide must be attached to your weekly tutorial answers
Student name___________________________
Student ID ________________
Writing -clear and concise
Very Good
Good
5
4, 3

Fair
2

Poor
1

Knowledge demonstrated
Set materials used: lecture, notes, text book, additional research
Very Good
Good
Fair
Poor
5
4, 3
2
1
Decision making re questions
Opinions are supported and appropriate alternatives discussed
Very good
Good
Fair
Poor
5
4, 3
2
1
TOTAL MARK

______ (153)

Tutor Comments:

Page 18 of 20

ACCOUNTING (AUDITING) 300

APPENDIX 2
Case from Schelluch, Topple, Jubb, Rittenberg and Schwieger, Assurance and Auditing, Concepts for a
Changing Environment, Thomson, 2004

7.39
(Evaluation of testimonial evidence) One major task for an auditor is to evaluate the reliability of testimonial
evidence, which may come in the form of oral representations from management or in written form from parties
outside the organisation.
Required:
A
In the course of an audit, the auditor asks many questions of client officers and employees. Describe
the factors the auditor should consider in evaluating oral evidence provided by client officers and
employees.
B
For each of the following examples of testimonial evidence, identify either:
1
An alternative source of evidence
Or
2
Corroborative evidence the auditor might seek.
Examples of testimonial evidence:
1
Confirmations received from customers as to the balance of accounts receivable shown by the
client.
2
Management is optimistic that all items in a product line will be sold at normal process in spite of
a temporary downturn in sales.
3
Management intends to hold investments in marketable securities with an intent to convert them
into cash within the next operating period as cash needs dictate.
4
Management tells the auditor that the Therapeutic Goods Administration has approved its new
drug for commercial sale.
5
The auditor interviews the production manager, who candidly identifies quality control problems
and points out substantial pieces of inventory that should be reworked before shipment.

7.40
(Persuasiveness of audit evidence) In this chapter several different kinds of audit evidence were identified. The
following questions concern the reliability of audit evidence.
A
Explain why confirmations are normally considered more reliable than inquiries of the client. Under
what situations might the opposite hold true?
B
Give three examples of reliable documentation and three examples of less reliable documentation.
What characteristics distinguish them?
C
Explain why observation is considered strong, but limited, evidence. Under what circumstances would
the auditors observation of inventory be considered of limited use?
D
Identify characteristics if internal evidence that would lead the auditor to asses its reliability as high.
E
Explain why tests of details may be more reliable that analytical procedures.
F
Explain how analytical procedures might lead to insight about the correctness of an account balance
that might not be obtained through tests of details.
G
Identify three instances when an auditor is likely to use recalculations as audit evidence. Why is it
important that recalculations take place? Is an auditor-prepared spreadsheet a recalculation or an
independent estimate of an account balance? Explain.

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ACCOUNTING (AUDITING) 300

APPENDIX 3
Case from Schelluch, Topple, Jubb, Rittenberg and Schwieger, Assurance and Auditing, Concepts for a
Changing Environment, Thomson, 2004

4.41
(Analytical procedures in planning an audit) Analytical procedures can be extremely powerful tools in
identifying potential problem areas in an Audit. Analytical procedures can consist of trend and ratio analysis
and can be performed by comparisons within the same company or comparisons across industry. The table on
page 142 shows the past two periods of results for a company and a comparison with industry data for the same
period.
Required:
A
What the advantages and limitations of comparing company data with industry data during the
planning portion of an audit?
Analytical data for Jones Manufacturing
Prior
Per cent
Current
Per cent
Period
of sales
Period
of sales

Sales ($000)
Inventory ($000)
Cost of goods sold ($000)
Accounts payable ($000)
Sales commissions ($000)
Inventory turnover
Average number of days to
collect
Employees turnover
Return on investment
Debt / equity

$10 000
$2 000
$6 000
$1 200
$500
6.3
39
5%
14%
35%

100.0
20.0
60.0
12.0
5.0
-

$11 000
$3 250
$6 050
$1 980
$550
4.2
48
8%
14.3%
60%

100.0
29.5
55.0
18.0
5.0
-

Per cent
change

10.00
57.50
0.83
65.00
10.00
(33.00)
23.00

Industry
Average
as a per
cent of
sales
100.0
22.5
59.5
14.5
NA
5.85
363.0

60.00
71.00

4.0
13.8
30.0

From the preceding data, identify potential risk areas and explain why they represent potential risk.
Briefly indicate how the risk analysis should affect the planning of the audit engagement.

Page 20 of 20