Auditing theory and practice Essay Example | Topics and Well Written Essays - 2000 words

Auditing theory and practice - Essay Examplefy these weaknesses or considered as risks associated with these financial statements, we perform comparative year-on-year and ratio analyses which whitethorn be effective for us to come in possible problem areas for additional analysis and audit testing and for which we can provide otherwise assistance. Among otherThe smart sets short-run debt paying ability. We analyse the companys luculentity status, such as its trustworthy ratio is 1.28 (lower than 1.31 in 2004) but it indicates that the company should have sufficient fund to pay its short-term debts. Our calculation also indicates that the company will be able collect the amount owed by its customers, overlook the average day of collecting payment of 82 days (15 days longer than the previous year). This may have an affect on negative cash in flow. Since the company does not have sufficient cash to have its short-term obligations, the company may consider lengthening the time i t takes to convert less liquid assets into cash.Short-term liquidity. The companys balance sheet shows that it has negative cash balance. It is likely that the company or that the record shows that the company cannot meet its obligation. Therefore, its debt-paying ability would be the length of time it takes the company to convert its current assets into cash. The companys balance sheet indicates a huge amount of bank overdraft. In chemise of necessary, the company has 2.5 times cash turnover rate (down by .89), 4.36 times of receivables turnover rate (down by .94), can re backbone the value of its fixed assets 51.17 (down from 56.93), and over all, 2.5 times (down from 3.2) chance to convert its assets into cash to cover bank over draft. With the absence of inventory, it may be possible that the company is having inventory obsolescence problem.Ability to meet long-term debt obligations. The companys debt-to-equity ratio is 3.35, down from 3.97 in 2004. There is a possibility that the company would be able to raise fund through borrowing.