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You have been presented with the following draft financial information about Efren Bata Reyes Ltd, a very successful company that develops and licenses specialist computer software and hardware. Its non-current assets mainly consist of property, computer hardware and investments, and there have been additions to these during the year. The company is experiencing increasing competition from rival companies, most of which specialize in hardware or software, but not both. There is pressure to advertise and to cut prices. You are the audit manager. You are planning the audit and are conducting a preliminary analytical review and associated risk analysis for this client for the year ended 31 July 2021. You have been provided with a summarized draft income statement which has been produced very quickly and certain accounting ratios and percentages. You have been informed that the company accounts for research and development costs in accordance with IAS 38 Intangible Assets. INCOME STATEMENT Year ended 31 July, 2021 S'000 Year ended 31 July 2020 S'000 13,524 3,007 Revenue 15,206 3,009 Cost of Sales Gross Profit 12,197 10,517 Distribution Costs Administrative Expenses Selling expenses Profit from Operations 3,006 1,996 994 1,768 3,002 274 5,195 995 6,479 Net Interest Revenue 395 Profit Before Tax 6,190 6,874 Income Tax Exnense 3.104 1.452

You have been presented with the following draft financial information about Efren Bata Reyes Ltd, a very successful company that develops and licenses specialist computer software and hardware. Its non-current assets mainly consist of property, computer hardware and investments, and there have been additions to these during the year. The company is experiencing increasing competition from rival companies, most of which specialize in hardware or software, but not both. There is pressure to advertise and to cut prices. You are the audit manager. You are planning the audit and are conducting a preliminary analytical review and associated risk analysis for this client for the year ended 31 July 2021. You have been provided with a summarized draft income statement which has been produced very quickly and certain accounting ratios and percentages. You have been informed that the company accounts for research and development costs in accordance with IAS 38 Intangible Assets. INCOME STATEMENT Year ended 31 July, 2021 S'000 Year ended 31 July 2020 S'000 13,524 3,007 Revenue 15,206 3,009 Cost of Sales Gross Profit 12,197 10,517 Distribution Costs Administrative Expenses Selling expenses Profit from Operations 3,006 1,996 994 1,768 3,002 274 5,195 995 6,479 Net Interest Revenue 395 Profit Before Tax 6,190 6,874 Income Tax Exnense 3.104 1.452

Foundations of Business - Standalone book (MindTap Course List)
Foundations of Business - Standalone book (MindTap Course List)
4th Edition
ISBN:9781285193946
Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Chapter15: Using Management And Accounting Information
Section: Chapter Questions
Problem 5DQ
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Using the information given in the question identify THREE high risk areas for the auditand explain why they are high risk areas. For each high risk area identified, describe one audit procedure you would perform in
response to those risks.

You have been presented with the following draft financial information about Efren Bata Reyes Ltd, a very successful company that develops and licenses specialist computer software and hardware. Its non-current assets mainly consist of property, computer hardware and investments, and there have been additions to these during the year. The company is experiencing increasing competition from rival companies, most of which specialize in hardware or software, but not both. There is pressure to advertise and to cut prices. You are the audit manager. You are planning the audit and are conducting a preliminary analytical review and associated risk analysis for this client for the year ended 31 July 2021. You have been provided with a summarized draft income statement which has been produced very quickly and certain accounting ratios and percentages. You have been informed that the company accounts for research and development costs in accordance with IAS 38 Intangible Assets. INCOME STATEMENT Year ended 31 July, 2021 S'000 Year ended 31 July 2020 S'000 Revenue 15,206 3,009 13,524 3,007 Cost of Sales Gross Profit 12,197 3,006 10,517 Distribution Costs Administrative Expenses Selling expenses Profit from Operations 1,996 994 1,768 3,002 274 6,479 5,195 995 Net Interest Revenue 395 Profit Before Tax 6,190 3,104 6,874 1,452 Income Tax Expense Net Profit 3,086 1,469 5,422 Dividends Paid 1,439 Retained Profits 1,617 3,983
Transcribed Image Text:You have been presented with the following draft financial information about Efren Bata Reyes Ltd, a very successful company that develops and licenses specialist computer software and hardware. Its non-current assets mainly consist of property, computer hardware and investments, and there have been additions to these during the year. The company is experiencing increasing competition from rival companies, most of which specialize in hardware or software, but not both. There is pressure to advertise and to cut prices. You are the audit manager. You are planning the audit and are conducting a preliminary analytical review and associated risk analysis for this client for the year ended 31 July 2021. You have been provided with a summarized draft income statement which has been produced very quickly and certain accounting ratios and percentages. You have been informed that the company accounts for research and development costs in accordance with IAS 38 Intangible Assets. INCOME STATEMENT Year ended 31 July, 2021 S'000 Year ended 31 July 2020 S'000 Revenue 15,206 3,009 13,524 3,007 Cost of Sales Gross Profit 12,197 3,006 10,517 Distribution Costs Administrative Expenses Selling expenses Profit from Operations 1,996 994 1,768 3,002 274 6,479 5,195 995 Net Interest Revenue 395 Profit Before Tax 6,190 3,104 6,874 1,452 Income Tax Expense Net Profit 3,086 1,469 5,422 Dividends Paid 1,439 Retained Profits 1,617 3,983
Accounting Ratios & Percentages 0-43 Earnings per Share Performance Ratios including the following: Gross Margin Expenses as a percentage of revenue: Distribution Costs Administrative Expenses Selling Expenses Operating Profit 1-04 0-80 0-78 0-20 0-07 0-15 0-13 0-20 0-02 0-34 0-48
Transcribed Image Text:Accounting Ratios & Percentages 0-43 Earnings per Share Performance Ratios including the following: Gross Margin Expenses as a percentage of revenue: Distribution Costs Administrative Expenses Selling Expenses Operating Profit 1-04 0-80 0-78 0-20 0-07 0-15 0-13 0-20 0-02 0-34 0-48
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