(Solved by Humans)-ASSIGNMENT Your firm has been approached by a listed company,

Question

Hi! I'm doing Auditing this semester and I have an assignment which is hard for me to get done. i need your help now. Please help me to solve this question. Thank you so much.

My part is (a) 1.?

ASSIGNMENT
Your firm has been approached by a listed company, POFO Limited, and asked if you will
accept appointment as auditors for the year ending 31 December 2015 (it is now late
November 2015).
POFO Ltd?s Finance Director provided you with the following statement of financial position
and income statement information which included actual figures for years ending 31
December 2012 to 2014, with estimated figures for 2015.
POFO Ltd produces gadgets. This was once a fairly profitable industry but both the size and
profitability of the industry in Australia have declined significantly in recent years due to
advanced technology and replacement products (which POFO Ltd is unable to produce with
its existing plant and equipment). Over recent years a number of its competitors and
customers have closed down and existing tariffs, quotas and import duties on imported
gadgets have been scheduled to be abolished at the beginning of 2015.
POFO Ltd?s factory closed in late November, pending the resolution of an industrial dispute
(factory workers demanding a 15% wage rise and reduced hours). It is unlikely that work will
resume prior to the Christmas shutdown and consequently the estimated figures for 2015 are
not, in the opinion of the Finance Director, expected to change.

ZORO LIMITED
INCOME STATEMENT
2012
$'000

2013
$'000

2014
$'000

2015
$'000

112,500
90,000
2,000
750
2,400

115,875
98,494
2,000
750
2,000

108,923
98,031
2,000
750
1,800

92,584
86,103
2,000
750
1,500

1,850

1,850

1,850

1,850

15,500

10,781

4,492

381

Tax expense

6,045

4,204

1,752

149

NPAT

9,455

6,577

2,740

232

Revenue
COGS
Depreciation
Amortisation
Interest - Expense (net)
Other expenses
NPBT

ZORO LIMITED
BALANCE SHEET AS AT
2012
$'000

2013
$'000

2014
$'000

2015
$'000

Current assets
Cash
Receivables
Inventories
Other

630
21,171
19,784
517

500
24,347
22,752
517

450
27,999
26,164
517

150
33,598
31,397
517

Total Current Assets

42,102

48,116

55,130

65,662

Non-Current assets
Investments
Property, plant & equipment
Intangibles
Other

87
25,921
15,349
1,115

87
23,977
14,582
1,115

87
22,179
13,852
1,115

87
20,515
13,160
1,115

Total Non Current Assets

42,472

39,761

37,233

34,877

Total assets

84,574

87,877

92,363

100,539

Current liabilities
Creditors
Borrowings
Provisions

9,267
5,000
11,772

10,657
0
12,361

12,256
2,500
12,978

14,707
4,000
13,627

26,039

23,018

27,734

32,334

1,338
5,000
1,531

1,137
5,000
1,479

94
3,000
1,552

1,360
5,000
1,630

7,869

7,616

4,646

7,990

33,908

30,631

32,380

40,324

Non-current liabilities
Creditors
Borrowings
Provisions

Total liabilities

Net assets

50,666

57,243

59,983

60,215

Shareholders, equity
Share capital
Reserves
Retained profits

26,202
11,187
13,277

26,202
11,187
19,854

26,202
11,187
22,594

26,202
11,187
22,826

Total shareholders, equity

50,666

57,243

59,983

60,215

Required
(a)

The responsible partner for accepting new clients has requested you to prepare a
preliminary analytical review on the information provided by POFO Ltd?s Finance
Director. The partner suggests that as a minimum you should provide him with the
following information.
(1) Horizontal analysis for 2015 and 2014. For asset?s items use the net assets as base
figure and for items in the income statement use the net profit before tax as the base
figure. Use the findings to suggest to him the audit risk areas bearing in mind the
assertions. (5 marks)
(2) Calculate 2 liquidity ratios, 2 activity ratios, 4 profitability ratios and 2 solvency
ratios over the period 2011 to 2015.
Use Excel to answer both sections of part (a). Produce a working sheet showing the
formulae that you have used to calculate the ratios on Excel. (8 marks + 2 marks for
presentation)

(b)

List four areas of high inherent risk based on your findings in (a) above and explain
how they could affect the financial statements of 2015. (5 marks)