Uden Supply Company Audit Case Study

Planning, performing and reporting are the three major stages of auditing. The first stage in an audit is the planning stage. The planning stage consists of getting to know the client, pinpointing factors that could impact the risk for a material misstatement for the financial records, and creating an audit strategy (Wiley,2015). Marilyn Terrill is the senior auditor for the the Uden Supply Company audit, for this client she will need to perform the analytical procedures and calculate the expected figures for the income statement. These calculations will assist in determining any misstated amounts in the financial statements. Analytical procedures are “evaluations of financial information through analysis of plausible relationships among …show more content…
Uden supply Company declared a 31% increase in gross profit. The increase stated as a percentage is a misstatement and if calculated accordingly would result in a gross profit of $3,348 in thousands. However, Terrill believes that gross profit will be down 2% for 20x4 and according to calculations, the expected gross profit would then be $7,701. Gross profit for 20x3 is $3100. Divide gross profit by 20x3 sales and then multiply by 100 to get gross profit percentage of 30.69%. To calculate expected gross profit percent for 20x4, with a 2% decrease, subtract the 2% from 30.69%. The expected gross profit for 20x4 is $10,800, multiplied by 28.69% to arrive at gross profit of $3099. Cost of goods sold is calculated by subtracting 3,099 from 10,800, expected COGS for 20x4 is $7701. To calculate advertising expense as a percent of sales, 20x3 advertising expense of $202 divided by sales of 10100 equals .02. 20x4 sales are expected to be $10,800 multiplied by .02 to realize expected expense of $216. To calculate payroll taxes a sa percentage of salaries, 20x3 payroll taxes of $199 divided by salaries of $1103 results in .1804. For 20x4 expected salaries are at $1124, multiply that by .1804 resulting in payroll taxes of