Part b. covers risks identified using analytical procedures based on the financial data. You will be asked to identify transaction process risks associated with sales and purchases in another task.
· 1. Preliminary Analytical Procedures - Review ABC Appliance's financial statements, ratios, and industrial data presented at the end of this document. Identify four accounts that you believe need additional audit scrutiny and explain why. I have included one example – and you will need to add four more to the list. Copies of ABC's audited 2014 and unaudited 2015 financial statements are included after these requirements. Some common ratios for ABC and their industry are also included.
2. Preliminary Materiality Judgments- Set two preliminary materiality dollar amounts for the ABC audit – one for the balance sheet and one for the income statement. Document how you calculated your materiality amounts and explain why you chose the approach you did. There are many sources of materiality level judgments for audits in websites on the internet. You can select the approach that you like – remember that you need to explain the approach that would be best for ABC. Remember that the materiality level sets the level for transactions that an auditor will look at; below that level the auditor may not look at the transaction unless there is a high risk for that particular type of transaction