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Business · Accounting
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You are the auditor of Huggins Ltd. an assembler and wholesaler of desktop computers you have performed analytical procedures on the 20X9 unaudited financial statements of Huggins Ltd and tabulated the results along with prior year’s results in Table 1 below. You have also calculated similar ratios for Huggins Ltd.’s two main competitors and tabulated these in Table 2 below.

Table 1: Huggins Ltd results for the year

20x9

20x8

20x7

20x6

Receivable turnover

9.11

6.53

10.13

3.49

Inventory turnover

3.38

3.15

3.26

1.58

Net Profit as a % of sales

5.63

4.84

3.94

4.95

Inventory as a % of sales

31.5

33.08

33.08

34.43

Sales commission as a % of sales

8

8

6

6

Repairs expense as a % of sales

1.38

3.22

1.04

2.78

PP & E as a % of Sales

42.75

42.64

49.84

27.11

Inventory as a % of current assets

75.71

70.09

110.14

49.16

PP & E as a % of total assets

53.66

50.06

66.26

28.13

Working capital

34650

22050

8350.88

4442

Current ratio

4.08

2.76

2.69

1.35

Table 2: Competitor analysis for 20x8

Huggins Ltd

Competitor 1

Competitor 2

Receivables turnover

6.53

9.52

10.78

Inventory turnover

3.15

4.73

6.91

Inventory as a % of sales

33.08

26.21

15.3

PP&E as a % of sales

42.64

14.74

11.48

Current ratio

2.76

3.76

1.94

Quick ratio

1.02

1.46

1.15

Inventory as a % of current assets

70.09

68.51

45.9

PP&E as a % of total assets

50.06

27.45

26.44

After examining the results of analytical procedures, which [account balances] of the Huggins Ltd financial statements would justify increased audit attention?

To what extent can analytical procedures be used as a substantive analytical procedures and tests of details not undertaken for the following material account balances?

Accounts receivable

Sales Commission expense

Repairs expense

justify your answer.

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