Sample content Ch. 8, 10, & 11 Textbook Exercises 8-16 (Analytical Procedures) In audit planning the audit of Circuits Technology, Inc. (CTI). CTI actively installs and acts as a reseller while providing computer network products including client software, gateway hardware, software, and twinax hardware to other businesses. Figure 8-14 provides a short summary based on the CTI´s financial statements. Required a. Calculate purchases, gross margin, inventory turn days, accounts receivable turn days, and accounts payable turn days for the years ended 20×2, 20×3, 20×4, 20×5. b. Describe the trends identified by performing analytical procedures in the gross operating cycle, the net operating cycle, and gross margin. c. If tolerable misstatement is $45,000 for inventory, develop an expectation range for inventory turn days. d. With respect to inventory, what might these trends indicate about the potential misstatement in inventory? 8-16. a.

1. ACC 491 Week 4 Individual Assignment Ch
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Sample content
Ch. 8, 10, & 11 Textbook Exercises
8-16 (Analytical Procedures) In audit planning the audit of Circuits Technology,
Inc. (CTI). CTI actively installs and acts as a reseller while providing computer
network products including client software, gateway hardware, software, and

2. twinax hardware to other businesses. Figure 8-14 provides a short summary based
on the CTI´s financial statements.
Required
a. Calculate purchases, gross margin, inventory turn days, accounts receivable
turn days,
and accounts payable turn days for the years ended 20×2, 20×3,
20×4, 20×5.
b. Describe the trends identified by performing analytical procedures in the gross
operating
cycle, the net operating cycle, and gross margin.
c. If tolerable misstatement is $45,000 for inventory, develop an expectation range
for
inventory turn days.
d. With respect to inventory, what might these trends indicate about the potential
misstatement
in inventory?
8-16. a. The table below further analysis purchases, gross margin
percentage, and inventory turn days, accounts receivable turn days, accounts
payable turn days, and the gross and net operating cycle.
b. Important trends for 20×5 (the likely year about to be audited) further
involve a significant increase in inventory turn around, the increase in gross margin
to the best result in the four year period, and an escalated collection period.
c. There are scenarios in which tolerable misstatements in the inventory are
turned by the auditor through the process of calculating the inventory turn days
using the following formula:
Tolerable Misstatement / Cost of Goods Sold * 365 = 45 / 1,859 * 365 = 7.84 days

3. d. The largest changes in the 20×5 include the combined decrease of
purchases and increased gross margins increasing to 52.4%, while inventory turn
days also increases significantly, increasing to 199 days. The adjustment from a
183 day inventory into 199 inventory turn is significant and the results are further
detailed in the example below. This is possible evidence for the overstatement of
the inventory and will eventually lead to errors in counting, calculating errors, or
errors because of fraudulent financial reporting.
10-32 (Components of Internal Control) Internal controls can be categorized using
the following framework.
1. Control environment
2. Risk assessment
3. Information and communication
4. Control activities
4.1. Authorization
4.2. Segregation of duties
4.3. Information processing controls
4.3.1. Computer general controls
4.3.2. Computer application controls
4.3.3. Controls over the financial reporting process
4.4. Physical controls
4.5. Performance reviews
4.6. Controls over management discretion in financial reporting
5. Monitoring
6. Antifraud programs and controls

4. Following is a list of controls prescribed by Waterfront, Inc.
a. Management has structured an established code of conduct which includes
rules that present interests related to purchasing agents.
b. Waterfront has established a disclosure committee in order to review a selection
of the latest accounting policies.
c. Any computer program revision must first be approved by user departments
once the testing of the program is completed and all the test data is available.
d. Managers of Waterfront manufactu
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