Essay on Leslie Fay Case

1038 Words Nov 11th, 2014 5 Pages
ACCT 497
Writing assignment 1
Siqi Wang
The Leslie Fay Companies
Analytical Procedures Report
Executive Summary
After reviewing the Financial Report from The Leslie Fay Companies from 1987 to 1991, I made ratios of Balance Sheet and Income Statement to start with audit planning, which could help us make comparison directly. Also, the calculation of ratios in liquidity, activity, profitability and solvency contains in my report. The purpose of analytical procedures is to detect “red flags” within the financial and non-financial information. For the financial part, firstly, I made year-to-year comparisons from 1987 to 1991; then, I did going concern analysis that to compare the data from The Laslie Fay Co. with the industry standard
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More specifically, Retained Earnings was increased 13.4% from 1987 (16.5%) to 1990 (29.1%). However, it zoomed from 29.1% in 1990 to 39.6% in 1991, which is an over 10% gain. In my opinion, it is an indicator for Leslie Lay to overstate its Retained earnings in order to overstate its Stockholders’ Equity. Also, the Income Tax was increasing consistently from 1987 (2.0%) to 1990 (2.3%), but it decreased from 2.3% in 1990 to 1.8% in 1991. As far as I can see, this is an unusual and inconsistent decrease in Income tax expense, it might be an indicator of Leslie Fay to understate its Income Tax expense in order to overstate its Net Income.
Going Concern Analysis To compare the key financial ratio of Leslie Fay Co with industry standards in 1991, we can see the overall operations and financial conditions are far exceed than industry standards and our expectations. With deeply analysis, I detect several problems in its Key Financial Ratio. For liquidity, its current ratio (2.9) and quick ratio (1.5) in 1991 are both over the industry standards which is 1.8 and .9, respectively. In other words, Leslie Fay had a strong ability to convert its asset into cash quickly. However, the unusual gains in PP&E account and decrease in Long-term Debt caused the increase in Total Assets and decrease in Total Liability. As a consequence, it suspected to enlarge the number of current ratio and quick ratio. For Solvency, the Long-term Debt to Equity is

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