Auditing Essay for Kcn

Working Paper for KCN

Christopher Lewis

ACT 450 –Auditing

Colorado State University – Global Campus

Stan Helm

June 20, 2014

Working Paper for KCN

Notes from the auditing team stated that the analytical ratios working paper was only partially completed for Keystone Computers & Networks, Inc. (KCN); the ratios for 20X5 are missing. This analytical procedure often includes the usage of general financial ratios throughout preparation and last assessment of the audited financial statements. The auditing team will make the proper comparisons, and the most significant comparison is those of prior years for the business and to industry averages or comparable businesses for the same year (Whittington & Pany, 2014, p. 197). This essay will show the completed analytical ratio working paper for KCN and identify financial statement accounts to be investigated.

Completed Analytical Ratio Working Paper for KCN

Table 1

Ratio | Ending 12/31/X5 | Ending 12/31/X4 | Industry |

Current Ratio | 1.14 | 1.22 | 1.30 |

Days’ Sales in accounts receivable | 37.0 | 33.2 | 37.0 |

Allowance for doubtful accounts | 1.0% | 1.1% | -- |

Bad debt expense | 0.3% | 0.2% | -- |

Total liabilities | 3.5 | 2.7 | 2.9 |

Return on total assets | 1.7% | 8.3% | 9.0% |

Return on net worth | 7.5% | 30.5% | 29.0% |

Return on net sales | .20% | 1.0% | 2.3% |

Gross profit | 22.1% | 23.2% | 24.0% |

Selling, operating and administrative expense | 21.2% | 21.4% | 23.9% |

Times interest earned | 1.7 | 4.1 | 5.5 |

Note. Adapted from “Principles of Auditing & Other Assurance Services,” 19th edition by R. Whittington and K. Pany, 2014, New York, NY: McGraw-Hill.

Financial Statement Accounts

Unexpected differences between the current year’s unaudited financial data other data used in comparisons are commonly called unusual fluctuations, one possible reason for this to occur will be the presence of an accounting misstatement (Arens, Elder, Beasley & Hogan, 2014, p....