final auditing project

ACCT 3043 – Auditing 1

Auditing Project on Goddard Enterprises

Group #20 Members

Day Students

Katrina Blackman - 411000787

Amelia Browne - 4080001863

Candice Crichlow - 410001599

Mario Francis - 411000106

Melissa Odle - 20051063

Jamaal Rochester - 411000265

Riyah Small - 407000313

Lecturer: Robertine Chadderton

Due Date: 15th November, 2013

Auditing Project on Goddard Enterprises Limited

Table of ContentsCompany Profile..........................................................................................................................................4

Part A..........................................................................................................................................................5

Part B...........................................................................................................................................................8

Part C...........................................................................................................................................................9

Analysis of Financial Statement Account Balances..................................................................................9

Revenue...............................................................................................................................................9

Cost of Goods Sold...............................................................................................................................9

Selling, Marketing and Administrative Expense...................................................................................9

Profit from Operations and Other (Losses)/Gains...............................................................................9

Ratio Analysis.......................................................................................................................................10

Current Ratio.....................................................................................................................................10

Cash Ratio..........................................................................................................................................10

Quick Ratio........................................................................................................................................10

Accounts Receivable Turnover..........................................................................................................11

Inventory Turnover............................................................................................................................11

Debt to Equity....................................................................................................................................11

Times Interest Earned........................................................................................................................12

Profit Margin.....................................................................................................................................12

Return on Assets................................................................................................................................12

Earning per Share (Basic)...................................................................................................................12

Part D........................................................................................................................................................14

Misstatements from Common Size Income Statement.............................................................................20

Gross Profit............................................................................................................................................21

Selling, Marketing and Administrative Expense.....................................................................................21

Employee Benefits Expense...............................................................................................................21

Depreciation Expense........................................................................................................................21

Changes in Inventories of Finished Goods and Work in Progress......................................................22

Other (Losses)/Gains: Net......................................................................................................................22

The Gain on Disposal of Property, Plant and Equipment...................................................................22

Impairment of Intangible Assets........................................................................................................23

Income before Taxation.........................................................................................................................23

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Net Income (Loss)..................................................................................................................................23

Misstatements from Common Size Balance Sheet....................................................................................24

Inventory...............................................................................................................................................25

Accounts Receivable..............................................................................................................................25

Deferred Tax Liabilities..........................................................................................................................25

Part F.........................................................................................................................................................26

Part G........................................................................................................................................................28

Appendix...................................................................................................................................................38

Auditing Working Papers.......................................................................................................................38

ACCT3043 - PRINCIPLES OF AUDITING.................................................Error! Bookmark not defined.

CASE GROUP PROJECT ASSESSMENT...................................................Error! Bookmark not defined.

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Company Profile

Goddard Enterprises Ltd (GEL) has been operating since 1921 and is a publicly traded Barbadian

company, listed on Barbados Stock Exchange, with a varied business portfolio that encompasses

interests in the Caribbean as well as Central and South America.

GEL’s has subsidiary companies such as: airline catering, industrial and restaurant catering, meat

processing, bakery operations, automobile retail and automotive parts, real estate, the

manufacture of aerosols and liquid detergents, investments, rum distilling, general trading,

packaging, fish and shrimp processing, property rentals, general insurance, financing as well as

shipping agents and stevedoring.

The Group includes both subsidiaries, that are wholly owned or in which GEL has a majority

share holding and associated companies.

Mission Statement

“To be successful and responsible while satisfying customers, suppliers, employees and

shareholders.”

GEL elements of it success include Vision, Creativity, Expertise, Tenacity and Location. As part

of its growth strategy, it has been involved in acquisitions and has formed alliances and joint

venture arrangements with its partners.

4


Part A

In order to analyse the year to year percentage change within the following financial

statement line items within the below table, we referred to Goddard Enterprises Limited

Financial Statements for the period 2010 to 2012.

Account Balance 2012 % Change

2012-2011

2011 % Change

2011-2010

2010

Revenue $999,14

8

5.25% $949,298 8.14% $877,828

Cost of Sales $647,50

9

2.56% $631,369 7.97% $584,786

Selling, Marketing

and Administrative

Expense

$302,99

8

8.11% $280,257 10.72% $253,130

Profit from

Operations

$51,146 295.81% $12,922 -76.01% $53,856

Income before

Taxation

$46,619 706.98% $5,777 -88.84% $51,746

Net (loss)/ Income for

the year

$33,914 -737.72% -$5318 -113.49% $39,433

Total Assets $897,17

6

1.08% $887,556 -0.70% $893,848

Total Liabilities $335,87 -1.26% $340,157 6.54% $319,272

5


4

Total Equity $561,30

2

2.54% $547,399 -4.73% $574,576

Table 1 showing the trend analysis of financial line items from Goddard Enterprise Limited Financial Statement (Figures

expressed in thousands)

Based on Table 1 in Part A, we believed the account balances of the identified financial

statement are important because:

Revenue is the amount of money a company earns before any expenses are taken out.

Therefore it was chosen as a line item because it shows that the organisation may have

potential for future profitability.

Cost of sales is the cost that goes into creating the products in which the organisation

sells. This was also chosen as a line item because it determines the volume of business

that is needed to maintain in order to operate profitably.

Selling, Marketing and Administrative Expenses is the overall expenses which are both

direct and indirect. It is important for the organisation to record these expenses as this

figure represents the overall cost of the expenses incurred in the making of the products

or services offered and is linked to sales.

Profit from operations indicates to the financial users of the company the amount of

money earned from the organisation’s operations before interest and tax is deducted.

This account balance is important as this would influence the decision of current and

prospective investors.

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Income before taxation is the money retained by the organisation before deducting taxes.

Therefore, it was chosen as a line time because it quantifies the operations and non-

operating profits of the organisation before taxes are considered.

Net (loss) / income for the year represents profit/loss earned by the organisation after all

the expenses including interest and tax of the company have been deducted from

revenues. Therefore, it was chosen as a line time because it measures the organisation’s

profitability for the year.

Total assets balances represent the current and long term asset of the organisation. An

asset represents items currently owned by the organisation and adds value to the

organisation. Therefore it can be considered that an organisation’s assets are vitally

important for the organisation’s overall success.

Total liabilities are the aggregates of all debts the organisation’s is liable for and its

obligations to transfer something of value to another party. This account balance is

important as current and prospective investors use this balance to determine the liquidity

of the organisation.

Total equity is defined as the value of the assets contributed by the owners. Therefore, it

was chosen as a line item because it describes the total amount of equity that the

owners/investors have within the organisation.

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Part B

Within in this section we have calculated the current, cash, quick, debt to equity, times

interest earned, gross profit percent, profit margin, return on assets, accounts receivable,

inventory turnover and earnings per share (basic) ratios. This is illustrated in Table 2 below and

the ratio workings for this section are located within the Appendix.

Ratios 2012 2011 2010

Current Ratio 1.505 1.430 1.538

Cash Ratio 0.237 0.190 0.287

Quick Ratio 0.632 0.562 0.659

Accounts Receivable

Turnover

10.79 10.77 10.72

Inventory Turnover 4.02 3.96 3.87

Debt to Equity 0.60 0.62 0.56

Times Interest Earned 4.13 1.09 4.34

Gross Profit Percent 35.194% 33.491% 33.383%

Profit Margin 3.394 -0.56 4.49

Return On Assets 3.780 -0.599 4.412

Earnings per Share (Basic) 41.2 cents (17.6) cents 46.1 cents

Table 2 Illustrated the Ratios for the period 2010-2012 (Figures expressed in thousands)

8


Part C

Within this section we have provided analysis based on the information within Table 1

and Table 2 illustrated above. This section is divided into two parts and these are:

Analysis of Financial Statement Account Balances

This section is based on the financial statement line items account balances within Table

1, selected from the Financial Statements of Goddard’s Enterprises Limited.

Revenue

It is evident for the period 2010-2012 Goddard Enterprises Limited continued to

experience growth within its revenue but compared to 2010-2011, the growth rate for 2011-2012

was significantly lower.

Cost of Goods Sold

Over the period of time, the cost of goods sold increased from 2010-2011 by 7.97%

whereas during 2011-2012 there was a slight increase but by only 2.56%.

Selling, Marketing and Administrative Expense

Goddard Enterprises Limited selling, marketing and administrative expense continuously

increased but the percentage rate of increase was 2.61% less than 2010-2011.

Profit from Operations and Other (Losses)/Gains

The company’s profit from operations decreased during the period, the most drastic

decline was experienced in 2010-2011 where it reduced from $53,856 to $12,922 by -76.01%

due to the loss obtained within the section Other (Losses)/Gain within the Consolidated Income

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Statement. Overall the increase of the selling, marketing and administrative expense contributed

to the reduction of the company’s profit from operations.

Ratio Analysis

Within this section our aim is to analyse the ratios identified and calculated within Table

2 above in Part B section.

Current Ratio

The current ratio examines the firm’s ability to meet short term debts and obligations

through the use of its short term assets. This ratio measures how the amount of current debt is

covered by current assets. Based on the above table, Goddard’s Enterprises Limited best year

2010 with respect to its ability to meet current obligation where the current assets peaked at

1.538 times that of its current liabilities. For the remaining fiscal years 2011-2012, even though

the company’s current ratio decreased to 1.42(2011) and increased to 1.505(2012) this didn’t

prevent the organisation from meeting its short term debts or obligations.

Cash Ratio

The cash ratio being the most conservative of the liquidity ratios measures the ability of

the organisation’s cash to cover its short term obligations. The decrease to 0.19 in 2011 indicates

that a change in cash and current liabilities affected the cash ratio for Goddard Enterprises Ltd,

luckily in 2012 there were signs of improvement as the ratio increased to 0.237.

Quick Ratio

Quick Ratio analyses the firm’s ability to meet its current obligations without certain

aspects of its current assets such as inventory. The quick ratio for Goddard Enterprises

decreased from 2010-2011 but in 2012 the ratio slightly increased from 0.562 to 0.632.

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Unfortunately these figures are all below 1.00 which indicates that the company is facing

challenges to meet short term liabilities. If the company’s current liabilities continue to increase

and the organisation isn’t able to convert inventory quickly enough in cash, the downturn in sales

would lead to a continuous decline in the quick ratio of the company as well as the increase need

to gain financing to meet its short term debt and obligation.

Accounts Receivable Turnover

The accounts receivable turnovers over from 2012 – 2010 was at a very high rate which

shows it’s much more favourable to have a high accounts receivable turnover. It shows the

number of times a business collects it average accounts receivables balance during a period.

Inventory Turnover

The inventory turnover for 2012 was 4.02, for 2011 was 3.96 and for 2010 was 3.87. These

inventory turnovers are very low which maybe an indication of over-stocking which may pose

risk of obsolescence and increased inventory holding costs.

Debt to Equity

Debt to Equity measures what portion of debt and equity is employed to finance its

assets. The higher the ratio the more aggressive the firm has been in employing debt to finance

its growth and the higher the debt, the higher the interest expense. Goddard Enterprise Limited

debt to equity ratio increased from 2010-2011 from 0.56 to 0.62 but declined by 0.02 in 2012.

This trend indicates that Goddard Enterprises maintained a reasonable debt to equity ratio as a

conglomerate; its fiscal year performance indicated that most of the company’s growth was

financed through equity.

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Times Interest Earned

The times interest earned ratio shows the company’s financial health or position in

relation to debt. From the analysis the company’s times interest earned ratio was 4.34(2010), it

made a drastic decline to 1.09(2011) and increased to 4.13(2012). During the year 2011, the

organisation experienced a drastic reduction of its EBIT compare to 2010 and 2012; this can be a

result of the current economic downturn.

Profit Margin

Profit Margin measure’s the relationship between net income and net sales; it shows how

much every dollar in sales is kept in profit. Goddard Enterprise worst financial performance was

in 2011, during this year the company reported a net profit margin of -0.56% which obviously

resulted in a net loss within that year. When compared to year 2010, 2011 reported a higher

revenue gain but its downfall was the high expenses experienced during that year. In 2012, the

company increased its performance reported an increase in its profit margin from -0.56% to a

significantly higher rate of 3.394%.

Return on Assets

Return on Assets indicates the amount of profits that were generated by invested capital

(assets). Just like the profit margin, the fiscal year 2011 net income loss illustrates the poor

performance compared to its positive net income returns from previous years. The ROA ratio for

2010 was 4.412 but due to the net income loss in 2011 reduced it to -0.60.

Earning per Share (Basic)

The Earnings per Share ratio represents the portion of a company’s profit that is allocated

to each outstanding share of common stock and this ratio serves as an indicator of common

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stock1. Goddard Enterprises Limited, earnings per share (Basic) ratio drastically decreased from

46.1 cents to -17.6 cents during the period 2010-2011 while from 2011-2012 the ratio

significantly increased from -17.6 cents to 41.2 cents, from the above ratios it is evident that the

drastic decrease from 2010-2011 occurred due the company’s overall net loss for the year 2011.

Investors should not be afraid to invest or continue to invest in Goddard Enterprises Limited due

to the 2011 net income loss of ($5,318) as in 2012 the company profit increased to 33,914 and

the earnings per share was up to 41.2 cents.

1 http://www.investopedia.com/terms/e/eps.asp

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Part DTable 3: This Illustrates Goddard Enterprises Limited Common Size Consolidated Statement of Income for the Period 2010-2012

Goddard Enterprises LimitedCommon - size Consolidated Statement of Income

For the years 2010, 2011 and 2012Account 2012 2011 2010 Preliminary Balance % of

revenueAudited Balance % of

revenueAudited Balance % of

revenueRevenue $ 999,148.00 100.000

% $ 949,298.00 100.000

% $ 877,828.00 100.000

%Cost of Sales $ (647,509.00) -64.806% $ (631,369.00) -66.509% $ (584,786.00) -66.617%Gross Profit $ 351,639.00 35.194% $ 317,929.00 33.491% $ 293,042.00 33.383%Underwriting Income $ 4,145.00 0.415% $ 3,095.00 0.326% $ 3,154.00 0.359%Selling, Marketing and Administrative Expenses

$ (302,998.00) -30.326% $ (280,257.00) -29.523% $ (253,130.00) -28.836%

Profit From Operations before the following

$ 52,786.00 5.283% $ 40,767.00 4.294% $ 43,066.00 4.906%

Other (Losses)/Gains - net $ (1,640.00) -0.164% $ (27,845.00) -2.933% $ 10,790.00 1.229%Profit From Operations $ 51,146.00 5.119% $ 12,922.00 1.361% $ 53,856.00 6.135%Finance Costs $ (12,393.00) -1.240% $ (11,825.00) -1.246% $ (12,415.00) -1.414% $ 38,753.00 3.879% $ 1,097.00 0.116% $ 41,441.00 4.721%Share of income from associated companies

$ 7,866.00 0.787% $ 4,680.00 0.493% $ 10,305.00 1.174%

Income Before Taxation $ 46,619.00 4.666% $ 5,777.00 0.609% $ 51,746.00 5.895%Taxation $ (12,705.00) -1.272% $ (11,095.00) -1.169% $ (12,313.00) -1.403%Net (Loss)/ Income for the year $ 33,914.00 3.394% $ (5,318.00) -0.560% $ 39,433.00 4.492% All accounts are expressed as a percentage of the revenue for the year. The common size income statement reveals the trend of expenses and profits.


Breakdown of: 2012 2011 2010

Preliminary Balance % of

revenue

Audited

Balance

% of

revenue

Audited Balance % of

revenue

Cost of Sales and Selling, Marketing and

Administrative Expenses:

Depreciation $ 23,122.00 2.31% $ 23,071.00 2% $ 21,884.00 2.49%

Employee Benefits Expense $ 180,010.00 18.02% $ 167,531.00 18% $ 148,816.00 16.95%

Changes in Inventories of Finished Goods and Work

in Progress

$ 12,189.00 1.22% $ (3,239.00) 0% $ (7,886.00) -0.90%

Raw Materials and Consumables Used $ 599,966.00 60.05% $ 598,613.00 63% $ 557,841.00 63.55%

transportation $ 2,580.00 0.26% $ 2,475.00 0% $ 2,713.00 0.31%

Advertising Costs $ 12,091.00 1.21% $ 10,891.00 1% $ 11,894.00 1.35%

Provision for Impairment of Receivables $ 3,577.00 0.36% $ 1,669.00 0% $ 3,518.00 0.40%

Other Expenses $ 116,972.00 11.71% $ 110,615.00 12% $ 99,136.00 11.29%

Other (losses)/ gains - net:

(loss) / gain on disposal of financial investments $ (104.00) -0.01% $ 3,254.00 0.34% $ 1,161.00 0.13%

Gain on disposal of property, plant and equipment $ 883.00 0.09% $ 1,055.00 0.11% $ 835.00 0.10%

Interest income $ 1,767.00 0.18% $ 1,601.00 0.17% $ 1,887.00 0.21%

Rental income $ 3,453.00 0.35% $ 3,714.00 0.39% $ 3,425.00 0.39%

Gain arising on acquisition $ - $ 155.00 0.02% $ 6.00 0.00%

15


Loss on remeasurement of pervious equity interest in

associate at fair value

$ - $ (44.00) 0.00% $ -

Dividends from other companies $ 337.00 0.03% $ 415.00 0.04% $ 400.00 0.05%

Amortization charge $ (1,988.00) -0.20% $ 1,134.00 0.12% $ (1,133.00) -0.13%

Impairment of intangible assets $ (3,683.00) -0.37% $ 13,986.00 1.47% $ (289.00) -0.03%

Gain arising on disposal of investment in associated

companies

$ - $ 863.00 0.09% $ -

Impairment of financial investment $ (50.00) -0.01% $ - $ (800.00) -0.09%

Fair value gains/ (loss) on revaluation of investment

property

$ 307.00 0.03% $ (148.00) -0.02% $ (486.00) -0.06%

Loss on revaluation of freehold land and buildings $ (514.00) -0.05% $ 418.00 0.04% $ 4,086.00 0.47%

Gain on wind - up of pension plan $ 66.00 0.01% $ - $ 882.00 0.10%

Hyperinflationary adjustment $ (2,114.00) -0.21% $ - $ 816.00 0.09%

Write - off of short - term investment $ - $ (9,710.00) -1.02% $ -

Write - off of associated companies $ - $ (14,298.00) -1.51% $ -

Table 4: This Outlines the Breakdown of Selling, Marketing and Administrative Expense and Other (Losses)/Gains Net

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Goddard Enterprises Limited

Common - size Consolidated Balance Sheet

For the years 2010, 2011 and 2012

2012 2011 2010

Preliminary Balance % of

revenue

Audited Balance % of

revenue

Audited

Balance

% of

revenue

Current Assets

Cash $ 55,583.00 6.20% $ 47,152.00 5.31% $ 65,050.00 7.28%

Trade and other receivables $ 108,988.00 12.15% $ 118,707.00 13.37% $ 96,529.00 10.80%

Prepaid Expenses $ 12,285.00 1.37% $ 10,699.00 1.21% $ 9,051.00 1.01%

Due by associated companies $ 7,768.00 0.87% $ 4,932.00 0.56% $ 8,640.00 0.97%

Reinsurance Assets $ 6,977.00 0.78% $ 10,209.00 1.15% $ 8,237.00 0.92%

Current income tax assets $ 2,697.00 0.30% $ 2,451.00 0.28% $ 4,870.00 0.54%

Inventories $ 159,267.00 17.75% $ 161,185.00 18.16% $ 155,725.00 17.42%

Total Current Assets $ 353,565.00 39.41% $ 355,335.00 40.04% $ 348,102.00 38.94%

Current Liabilities

Borrowings $ 105,151.00 31.31% $ 177,938.00 52.31% $ 109,263.00 34.22%

Trade and other payables $ 110,774.00 32.98% $ 110,269.00 32.42% $ 99,502.00 31.17%

Due to associated companies $ 3,119.00 0.93% $ 3,205.00 0.94% $ 2,443.00 0.77%

Current income tax liabilities $ 4,844.00 1.44% $ 2,969.00 0.87% $ 2,857.00 0.89%

Insurance Contracts $ 11,032.00 3.28% $ 14,152.00 4.16% $ 12,202.00 3.82%

Total Current Liabilities $ 234,920.00 69.94% $ 248,533.00 73.06% $ 226,267.00 70.87%

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Working Capital

Property Plant and Equipment $ 357,827.00 39.88% $ 344,367.00 38.80% $ 325,265.00 36.39%

Investment Property $ 13,496.00 1.50% $ 19,372.00 2.18% $ 23,557.00 2.64%

Intangible Assets $ 44,815.00 5.00% $ 40,571.00 4.57% $ 52,054.00 5.82%

Investments in associated companies $ 68,697.00 7.66% $ 70,652.00 7.96% $ 85,110.00 9.52%

Financial Investments $ 40,375.00 4.50% $ 43,739.00 4.93% $ 44,777.00 5.01%

Deferred Income tax assets $ 8,285.00 0.92% $ 6,824.00 0.77% $ 5,845.00 0.65%

Pension plan assets $ 6,052.00 0.67% $ 5,759.00 0.65% $ 7,708.00 0.86%

Long-term trade and other receivables $ 4,064.00 0.45% $ 937.00 0.11% $ 1,430.00 0.16%

$ 662,256.00 73.82% $ 639,023.00 72.00% $ 667,581.00 74.69%

Borrowings $ 95,072.00 28.31% $ 85,658.00 25.18% $ 86,582.00 27.12%

Deferred income tax liabilities $ 4,013.00 1.19% $ 3,713.00 1.09% $ 4,912.00 1.54%

Pension plan liabilities $ 1,869.00 0.56% $ 2,253.00 0.66% $ 1,511.00 0.47%

$ 561,302.00 $ 547,399.00 $ 574,576.00

Financed by:

Equity

Capital and reserves attributable to

equity holders of the company

Share Capital $ 43,842.00 7.81% $43,337 7.92% $42,454 7.39%

Other Reserves $ 107,080.00 19.08% $10,8228 19.77% $11,2841 19.64%

Retained Earnings $ 302,842.00 53.95% 285526 52.16% 308491 53.69%

$ 453,764.00 80.84% 437091 79.85% 463786 80.72%

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Non-controlling interests $ 107,538.00 19.16% 110308 20.15% 110790 19.28%

$ 561,302.00 100.00% 547399 100.00% 574576 100.00%

Table 5: This table illustrates Goddard Enterprises Common Size Balance Sheet for the period 2010-2012.

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Misstatements from Common Size Income Statement

In the below table we have identified accounts from Goddard Enterprises Limited Common Size

Income Statement we believe have a concern for material misstatements.

Account Balance Estimate of $ Amount of Potential

MisstatementGross Profit Gross profit percentage in 2010 was 33.38% and in 2011

was 33.49% which shows that it remains in the same range

for these two years. However from 2011 to 2012 it gross

profit percentage was 35.19%.

Selling, Marketing and

Administrative Expense

These expenses increase between the period 2012 and 2010

by $48, 868.

Other Losses (Gains) There was a drastic increase in the Other Losses between

the period of 2010 and 2011 of $17,055; although there

were still other losses in 2012 it was still a major

improvement as there was a decrease by $26,205 compared

to 2011. Therefore, there is a need to determine the reasons

why they had made such a loss in 2011 compared to the

other years of 2010 and 2012.

Income before Taxation We can see that there must be a misstatement in the

balances for income before taxation because there is a

5.286% decreasing difference between 2011 and 2010

while there is 4.057% increase between 2012 and 2011.

Net Income (Loss) The company experienced a net loss in the year 2011; net

income subsequently declined by $34,115 from 2010 to

2011 and then fluctuated by $39,232 from 2011 to 2012.

Table 6: Illustrating the accounts from the Common Size Income Statement identified for concern of material misstatement.


In reference to the material misstatement identified within Table 6, we have identified possible

recommendations as discussed below.

Gross Profit

This should be further investigated because the revenue account or account receivable can be

overstated by employees for a higher bonus or done to make the business look more attractive to

investors and creditors.

Selling, Marketing and Administrative Expense

In order to ascertain an overall understanding of the selling, marketing and administrative

expense figure, we thought it beneficial to look at the breakdown of each item within Goddard

Enterprises Limited Common Size Consolidated Statement of Income illustrated in Table 3.

Based on the breakdown the selected material misstatements are discussed below.

Employee Benefits Expense

From the breakdown it is evident that the employee benefits expense increased between

the period 2010 to 2012 from $148,816 to $180,010 and the percentage increase compared to

sales was 16.95% to 18.02%. Due to this drastic increase and based on this information it is

difficult to determine the amount Goddard Enterprises paid for salaries and wages. The auditor

needs to determine and be provided evidence to help determine whether there was an increase or

decrease in salaries for the given period as this section does not indicate what makes up the

employees benefit expense.

Depreciation Expense

The depreciation cost increased during the 2010-2012 period but when the depreciation

cost as a percentage to sales the percentage gradually decreases. The increase from 2010-2011

21


could indicate the purchase of new assets and the slight increase from 2011-2012 of $51 could

represent a misstatement within the records. Based on this information the auditor needs to

determine the cause of the increase in the depreciation expense from 2010-2011 and also be

provided evidence as to why the depreciation expense increased by only $51 from 2011-2012 as

this can represent an understatement.

Changes in Inventories of Finished Goods and Work in Progress

The changes in inventories of finished goods and work in progress increased drastically

from 2011-2012(-3239 to 12,189) compared to 2010-2011(-7886 to -3239). The auditor needs to

determine what caused the drastic increase of the expense account changes in inventories of

finished goods and work in progress as this can be caused due to overstatement and

understatement of this account.

Other (Losses)/Gains: Net

In order to gain an understanding of the Other (Losses)/Gains: Net, we constructed a

table illustrating the breakdown of each item within Goddard Enterprises Limited Common Sixe

Consolidated Statement of Income as shown in Table 3. Based on this breakdown we can

discuss the breakdown of the selected possible material misstatements below:

The Gain on Disposal of Property, Plant and Equipment

From the breakdown of other (losses)/gains it can be determined that the gain on

disposal of property, plant and equipment figure increased from $835 to $1,055 in 2010-2011

and decreased from $1,055 to $883 in 2011-2012. Based on this information it is determined

that for each year the company sold property, plant or equipment and substantially gained on the

disposal of the item or items. There is a possibility of material misstatement as when the

22


property, plant and equipment the depreciation expense should have reduced as well. Therefore

the auditor needs to review both the depreciation expense and gain on disposal of property, plant

and equipment.

Impairment of Intangible Assets

The impairment of intangible assets increased drastically from -$289 to $13,986

in 2010-2012 but decreased significantly from $13,986 to -$3683 in 2011-2012. Based

on this information the auditor needs to seriously determined and receive evidence

indicating what caused the significant increase in 2011 and the drastic decline in 2012.

Income before Taxation

For Income before Taxation, the auditor needs to determine what had caused the

organization’s income before taxation to decline for the period 2011. The auditor also need to

obtain the necessary information to verify the figures within Table 3; since 2011 the

organization’s income before taxation is significantly low compare to both 2010 and 2012.

Net Income (Loss)

For the Net Income (Loss), when compared to 2010 and 2012, the organisation made a

net loss in 2011. Based on this information the auditor need to carefully analyse the records

provided by Goddard Enterprises Limited to determine what caused the drastic net loss reported

by the organization in 2011.

23


Misstatements from Common Size Balance Sheet

In the below table we have identified accounts from Goddard Enterprises Limited Common Size

Balance Sheet we believe have a concern for material misstatements.

Account Balance Estimated of $ Amount of Potential

Misstatement

Inventory During the years 2010-2011 inventory increased

from 17.42% to 18.16% and decreased to 17.75 in

2012.

Trade and Other Receivable The trade and other receivables significantly

increased as indicated by the percentages from 10.80

in 2010 to 13.37 in 2011 but in 2012 decreased to

12.15%.

Deferred Income Tax Liabilities The Deferred Income Tax Liability was 1.54%

during 2010, decreased to 1.09% in 2011 and a slight

increase to 1.19 in 2012.

Table 7: Illustrating the accounts from the Common Size Balance Sheet identified for concern of material misstatement.

In reference to the material misstatement identified within Table 7, we have identified possible

recommendations as discussed below.

24


Inventory

The auditor needs to determine what caused the decline from 2011-2012 as potential

misstatements can occur due to inadequate provisions for handling damaged, obsolete or slow

moving stock.

Accounts Receivable

Due to the possibility of misstatements due to inadequate provisions for doubtful debts,

this can occur due to debts being outstanding too long to be recognised as fully recoverable.

Therefore the auditor would require further documentation from the company to make sure the

company has adequate provisions for doubtful debts to determine if they are recoverable or to be

written off as bad debt.

Deferred Tax Liabilities

The calculation of deferred tax liabilities can be quite difficult, therefore it can be a

possibility this figure maybe understated as the calculation may be done incorrectly. The auditor

has to determine if the calculations were made correctly as from the periods 2010-2012, the

deferred tax liabilities decrease from 1.54 to 1.09 then to 1.19 in 2012. Based on the

percentages, the auditor needs to determine what caused the significant decrease overall from

2010 compared to 2011-2012.

25


Part F

In general common sizing an income statement provides companies with better analytical

in-depth into its business’s performance and auditors of their clients business, by portraying each

line item in the income statement as a percentage of net revenues. This allows for the comparison

of the (quarterly or yearly) financial income statement on the same scale (once the company’s

business strategy over the given time periods doesn’t significantly vary) since common size

income statement data vary less than those of the actual raw figures in the income statement

which can be very misleading. In common sizing Goddard Enterprises Ltd Income Statement,

the potential possibility of misstatements would have been easily identifiable since any unusually

varying figures would stand out and raise an alert for further examination by the auditing

committee.

Goddard Enterprises Ltd trades under numerous company names over several different market

segments for example Purity Bakeries and Hanschell Inniss Ltd. On this basis (Based on this), it

can be derived that an ordinary common sized income statement doesn’t provide enough

information about the company’s true financial performance or position. If a Divisional Common

Size Income Statement was prepared, it would have revealed more accurate and concise

information about the company’s performance over the time period being evaluated. This type of

analytic tool would have proved very beneficial as it would have pinpointed which divisional

areas attributed to the changes in net revenues generated over the years of 2010 – 2012, therefore

providing the auditor with a better understanding of its clients business. With this concept in

mind any irregular variants in the net revenues could have been easily traced back to the division

26


in which a possible misstatement could have been made, clearly highlighting which areas of

Goddard Enterprises Ltd needed further examination.

In summary it can be deduced that although a common size income statement provides a

sufficient analytical understanding of Goddard Enterprises Ltd, a divisional common size income

statement would have contained more precise and accurate information enabling us to efficiently

and effectively perform a better examination when evaluating for potential misstatements.

2

2

27


Part G

To perform an analysis of an item, or subject of the analysis or inquiry entails the process of

dismantling or separating that item into constituent parts or elements, in an effort to study its

nature, function and its meaning. In analyzing the long term liabilities of the Goddard

Enterprises Ltd, it the credit worthiness of this company should be determined.

Long-term liabilities are those obligations which are due at least one year into the future, and

include debt instruments such as bonds and mortgages. Analyzing the long-term liabilities of a

firm is done for assessing whether or not the firm is in a position to meet these long-term

liabilities. After analyzing the long-term liabilities of the firm, there should be a reasonable basis

for determining a company's financial strength. This is necessary to avoid buying the bonds of,

or lending to, a company that has the potential to become insolvent.

The long term liability for the Goddard Enterprises Ltd was analyzed using the debt to equity

ratio which revealed that the ratio of debt to equity for the Goddard Enterprises Ltd is 0.23. In

other words, out of every $1.00 spent to finance the business’ operations, $.23 is financed by

debt. This was determined by dividing the company’s total long term debt, by the average of the

shareholders equity of the firm as follows:

Debt to Equity = Long – Term Debt + Value of Leases

Average Shareholders’ Equity

= 95,072,000 + 4,013,000 + 1,900,000

28


453,800,000 + 437,100,000 /2

= 100,900,000

445,450,000

= 0.2265 or 0.23

Generally, a high debt to equity ratio is worrisome and could indicate that the company is in a

precarious position, since it may be highly levered. This level of debt to equity then means that

the Goddard Enterprises Ltd has a good debt ratio as the company’s debt level is low, and as

such, it is exposed to less risk of interest rate increases or the risk of losing its current credit

rating.

Goddard’s short term debt, which is shown in the current liabilities section of the company’s

Balance Sheet, is comprised of all debt which was incurred by the company and is due within

one year. The total current liabilities which totals $234,920,000 in 2012, has seen a reduction of

$13,613,000, down from $ 248,533,000. This shows that Goddard Enterprises Ltd was in good

financial standing over that period and as such was able to reduce both its long term and short

term liabilities. The following substantiates this:

Current Ratio: = Current Assets

Current Liabilities

= 353,565,000

234,920,000

= 1.5

29


So the current ratio for Goddard Enterprises Ltd is $1.50. This means that the company has

$1.50 of current assets for every $1.00 it has in current liabilities. It could also be said that they

have their liabilities covered 1.5 times over.

However, although a reduction is seen in the company’s current assets in 2012 when compared

with the previous period, it was still substantially higher than the company’s current liabilities

for the same year.

Accounts Receivable and Inventory

There are two elements in the cycle business which absorb cash. These are inventory and

receivables. For Goddard group and companies like it, a careful look at the correlation between

accounts receivables and inventories is also crucial.

When we compared our inventory account for the three year period, it showed that for 2010 the

company’s inventory level was at its lowest. However, although this is true and one would

expect it to be moved (sold) at a faster rate than inventory levels for the two subsequent years

that was not the case. Investigations revealed that inventory in 2010 spent two days longer in the

company’s books than it did in 2011 and yet another two days longer (four days) than it did in

2012.

Also, there was a significant build up in the company’s inventory from the period 2010 to 2011

to the tune of $5,460 which caused the question of obsolescence to be raised. Also; will the

company be able to sell these products? If so, is there any proof that there is an increased

30


demand for the products? Will there be a surplus of inventory remaining in the inventory

account? If there is, what control measures are put in place to avoid pilferage?

The reduction in the inventory in 2012, to the tune of $1,918 from the 2011 period, could be due

to increased demand which resulted in increased sales. This should see an increase in the

company’s cash levels for 2012 when compared to 2011.

For the year 2012 there was a 0.08 % decrease in the receivables from 2011, which signals that

the company had a good system in place for the collection of debts. Also, there was an increase

in the company’s total revenue by 0.05 % for the corresponding period, along with a decrease in

inventory by 0.01 %. The quicker receivables are collected from debtors, the faster the company

is able to release cash from that business cycle back into the business. Likewise, the opposite is

also true. The rate at which the Goddard Enterprises Ltd was able to collect from debtors is

shown below:

Receivables Turnover Ratio for 2012 =Net credit Sales

Average Accounts Receivable

= 999,148

92641

= 10.79

Receivables Turnover Ratio for 2011 = Net credit Sales


= 949298

31


88181

= 10.77

Receivables Turnover Ratio for 2010 = Net credit Sales


= 877828

81885

= 10.72

Loosely speaking, it could be said that Goddard has collected outstanding credit amounts and re-

loaned same a total of 10.79 times for the year 2012; 10.77 times for the year 2011 and 10.72

times for the year 2012. Since these ratios are relatively constant, it means that the group has

experienced no drastic changes in its collections over the three year period. This may be clearer

if measured in days, so the following in days’ sales should apply:

Days Sales in Receivables for 2012 = 365 Days

Receivables Turnover

= 365

10.79

= 33.8 or 34 days

32




= 365

10.77

= 33.9 or 34 days



= 365

10.72

= 34 days

Therefore, the rate on which the Goddard Enterprises Ltd collected on its credit sales for the

entire three year period is 34 days.

Analyzed in conjunction with the receivables account is the inventory account. During 2012,

2011 and 2010 the Goddard Enterprises Ltd had a Cost of Goods Sold of $647,509,000, $631369

and $584786 respectively. Their Inventory Account exhibited a balance of $159,267, $161185

and $155725 for the same period. Using these figures, the Average Inventory Turnover ratios

for the periods 2010, 2011 and 2012 can be shown as follows.

Inventory Turnover Ratio for 2012 = Cost of Goods Sold

33


Average Inventory

= 647509

161212

= 4.02


Average Inventory

= 631369

159379

= 3.96


Average Inventory

= 584786

151276

= 3.87

This means that the Goddard Enterprises Ltd has sold off its entire inventory a total of 3.87 times

in 2010, 3.96 in 2011 and 4.02 in 2012. This means that the group saw a constant increase in the

rate at which its products are sold, or are moved from its warehouses over the three year period.

The benefits enjoyed here are higher revenue from increased sales and ultimately, an increase in

34


the company’s profit margins. Since the rate at which the company’s products are being sold has

increased, this should mean that the day in which the goods remain in inventory should have

decreased over the same period. Like the receivables account, this can also be measured in days

as calculated hereunder:

Days Sales in Inventory for 2012 =365 Days

Inventory Turnover

=365 Days

4.02

= 90.9

Days Sales in Inventory for 2011 = 365 Days

Inventory Turnover

= 365 Days

3.96

= 92.1

Days Sales in Inventory for 2010 = 365 Days

Inventory Turnover

= 365 Days

3.87

35


= 94.4

The number of days that the stock of the Goddard group spent on the company’s inventory for

the year 2010 was 94 days. However, as predicted by the company’s inventory turnover ratio,

this number declined in the year 2011 to a total of 92 days and then to 91 days in 2012. The

slower stock is sold or moved, the longer it ties up the company’s supply of cash. It also

increases insurance and accommodation costs and interest charges. As a result of lowering

expense by reducing inventory, there will be an increase in the company’s profit.

36


Bibliography

http://yourbusiness.azcentral.com/importance-revenue-10650.html

http://www.qfinance.com/performance-management-calculations/cost-of-goods-sold

http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/operating-

profit-2796

http://www.readyratios.com/reference/profitability/ebt_earnings_before_tax.html

http://www.money-zine.com/investing/investing/understanding-net-income

http://www.accountingbase.com/IntroALE1.html



37




http://www.money-zine.com/investing/investing/understanding-net-income

http://www.readyratios.com/reference/profitability/ebt_earnings_before_tax.html

http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/operating-profit-2796

http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/operating-profit-2796

http://www.qfinance.com/performance-management-calculations/cost-of-goods-sold

http://yourbusiness.azcentral.com/importance-revenue-10650.html


Appendix

Auditing Working Papers

Name of the Client: Goddard Enterprises Ltd

Balance Sheet Date: 30 September 2012

Name(s) of the person who prepared it: Katrina Blackman, Melissa Odle, Jamaal Rochester,

Mario Francis, Amelia Browne

Date Prepared: November 1st 2013

Subject of the Paper

Calculations

For the percentage change of account balances between 2012, 2011 and 2010

2012 – 2011:

Revenue = ((999,148 – 949,298) / 949,298) * 100 = 5.25%

Cost of Sales = ((647509 – 631369) / 631369) * 100 = 2.56%

Selling, Marketing and Administrative Expense = ((302,998 – 280257) / 280257) * 100 = 8.11%

Profit from Operations = ((51146 – 12922) / 12922) * 100 = 295.81%

Income before Taxation = ((46619 – 5777) / 5777) * 100 = 706.98%

Net (Loss)/ Income for the year = ((33914 – (-5318)) / (-5318)) * 100 = -737.72%

38


Total Assets = ((897176 – 887556) / 887556) * 100 = 1.08%

Total Liabilities = ((335874 – 340157) / 340157) * 100 = -1.26%

Total Equity = ((561302 – 547399) / 547399) * 100 = 2.54%

2011 – 2010:

Revenue = ((949298 –877828) / 877828) * 100 = 8.14%

Cost of Sales = ((631369 – 584786) / 584786) * 100 = 7.97%

Selling, Marketing and Administrative Expense = ((280257 – 253130) /253130) * 100 = 10.72%

Profit from Operations = ((12922 – 53856) / 53856) * 100 = -76.01%

Income before Taxation = ((5777 – 51746) / 51746) * 100 = -88.84%

Net (Loss)/ Income for the year = (((-5318) – 39433) / 39433) * 100 = -113.49%

Total Assets = ((887556 –893848) / 893848) * 100 = -0.7%

Total Liabilities = ((340157 – 319272) / 319272) * 100 = 6.54%

Total Equity = ((547399 – 574576) / 574576) * 100 = -4.73%

Reviewer(s): Candice Crichlow

Objective of the test

The raw data figures found in financial statements only portray the surface performance

of businesses. In order to get a more in-depth and detailed assessment of Goddard Enterprises

Ltd performance for the periods 2012-2011 and 2011-2010, we prepared several financial ratios

39


based on percentage changes, which provided us with more analytical insight on Goddard’s true

financial position . Findings based on ratio analysis are more accurate and reliable as these ratios

allow for comparison on the same basis/scale, eliminating any potential misguided assumptions

based on raw financial figures.

The Findings

Revenue is income generated from daily business activity such as the sale of goods or

services. Based on the revenue figures for the periods 2012-2011 and 2011-2010 it would appear

that Goddard Enterprises Ltd profitability increased, however, with reference to the revenue ratio

it was deduced that they actually incurred a loss of -2.89% between the periods 2012-2011 and

2011-2010.

It was further noted that Goddard’s total assets increased by 1.78% although they

incurred a significantly greater net loss of -737.72% in 2012-2011 to -113.49% in 2011-2010. On

further analysis, we were able to attribute this increase of net assets to the positive change in total

equity which implied that Goddard issued more shares to generate money for investments.

Moreover, profit from operations increased by 371.82% from -76.01% in 2011-2010 to 295.81%

in 2012-2011, this can be related to Goddard’s investments in their assets (be it new machinery)

that helped to reduce their expenses.

The Conclusion

The findings from the ratios show that Goddard Enterprises Ltd tried to implement, several

strategies and/or different alternatives that would enable them to cut back on expenses in order to

retain more profits from sales generate. Based on this, it is advised that further examinations be

conducted for potential misstatements.

40




Name(s) of the person who prepared it: Katrina Blackman, Melissa Odle, Mario Francis

Date Prepared: November 3rd 2013


Calculations of Ratios:

Current Ratio = (Current Assets/ Current Liabilities)

Cash Ratio = (Cash/ Current Liabilities)

Quick Ratio = ((Cash + Accounts Receivables)/ Current Liabilities)

Accounts Receivables Turnover Ratio = (Revenue / ((Beginning Balance for Accounts

Receivables + Ending Balance for Accounts Receivables) / 2))

Inventory Turnover Ratio = (Cost of Sales/ ((Beginning Inventory Balance + Ending Inventory

Balance) / 2))

Debt to Equity Ratio = (Total Liabilities / Total Equity)

Times Interest Earned = (Profits from Operations / Interest)

Gross Profit Percent = ((Revenue – Cost of Sales) / Revenue) * 100)

Profit Margin = ((Net Income (Loss) / Revenue) * 100)

Return on Assets = (Net Income (Loss) / Total Assets)

41


Earnings per Share = Net Income (Loss) for the year attributable to equity holders of the

Company / Weighted average number of common shares in issue

2012:

Current Ratio = (353,565/234,920) = 1.505

Cash Ratio = (55,583/234,920) = 0.237

Quick Ratio = ((55,583 + 92,873) / 234,920) = 0.632

Accounts Receivables Turnover Ratio = (999,148 / ((92,873 + 92,408) / 2)) = 10.79

Inventory Turnover Ratio = (647,509 / ((162,031 + 160,393) / 2)) = 4.02

Debt to Equity = (335,874/561,302) = 0.60

Times Interest Earned = (51,146/12,393) = 4.13

Gross Profit Percent = ((999,148 – 647,509) / 999,148) * 100 = 35.194%

Profit Margin = (33,914/999,148) * 100 = 3.394

Return on Assets = (33,914/897,176) * 100 = 3.78

Earnings per Share = (24,696/59,935) = $0.412

2011:

Current Ratio = (355,335/248,533) = 1.43

Cash Ratio = (47,152/248,533) = 0.19

Quick Ratio = ((47,152 + 92,408) / 248,533) = 0.562

42




Debt to Equity = (340,157/547,399) = 0.62



Profit Margin = ((-5,318)/949,298) * 100 = -0.56

Return on Assets = ((-5,318)/887,556) * 100 = -0.599

Earnings per Share = ((-10,503)/59,799) = -$0.176

2010:

Current Ratio = (348,102/226,267) = 1.538

Cash Ratio = (65,050/226,267) = 0.287

Quick Ratio = ((65,050 + 83,954) / 226,267) = 0.659



Debt to Equity = (319,272/561,302) = 0.56



43


Profit Margin = (39,433/877,828) * 100 = 4.49

Return on Assets = (39,433/893,848) * 100 = 4.412

Earnings per Share = (27,516/59657) = $0.461

Reviewer(s): Jamaal Rochester


The objective of the test was to:

Evaluate Goddard Enterprises Ltd ability to pay its bills in the short run using

liquidity ratios.

Evaluate Goddard Enterprises Ltd ability to meet its long term obligations using

long term solvency ratios.

Examine how well Goddard utilizes its assets to generate revenues using turnover

ratios.

Evaluate how well Goddard manages its operations using profitability ratios.

The Findings

All three liquidity ratios decreased during 2011 relative to 2010 however these ratios then

increased in 2012, returning to almost the same level as in 2010. The total debt and debt to equity

ratios remain fairly constant over the three year period however the times interest earned ratio

decreased significantly from 2010 to 2011 but then increased from 2011 to 2012, returning to an

acceptable level. The day’s sales in receivables ratio increased from 2010 to 2011. This indicates

that Goddard took longer to collect on its credit sales during 2011. However this ratio then

decreased in 2012 to a level similar to that of 2010. The total asset increased steadily over the

44


three year period. This suggests that Goddard is using it assets more efficiently to generate

revenue. The profitability ratios followed the trend exhibited by most of the other ratios showing

a decrease from 2010 to 2011 and then an increase from 2011 to 2012.

The Conclusion

The ratios show a decrease in the Goddard’s financial health in 2011 however in 2012 these

ratios return to almost the same levels seen in 2010. This fluctuation warrants further

examination of the line items that affect these ratios. Net income, accounts receivable and cash

should all be examined to ensure that no material misstatements exist.

45




Name(s) of the person who prepared it: Katrina Blackman, Melissa Odle, Jamaal Rochester,

Date Prepared: November 5th 2013


Calculations

For the Common – size Consolidated Statement of income, Balance sheet and analysing each for

potential misstatement.

Common - size consolidated statement of income: all accounts are expressed as a percentage

of revenue for the year.

2012:

Revenue = (999,148/999,148) * 100 = 100%

Cost of sales = (-647,509/999,148) * 100 = -64.806%

Gross Profit = (351,639/ 999,148) *100 = 35.194%

Underwriting income = (4,145/999,148)*100 = 0.415%

Selling, Marketing and Administrative Expenses = (-302,998/999,148) *100 = -30.326%

Profit from Operations before the following = (52,786/999148)*100 = 5.283%

Other (Losses)/Gains – net = (-1,640/999,148) * 100 = -0.164%

46


Profit from Operation = (51,146/999,148) * 100 = 5.119%

Finance Costs = (-12,393/999,148) * 100 = -1.240%

Share of Income from Associated Companies = (7,866/999.148) * 100 = 0.787%

Income before Taxation = (46,619/999.148) * 100 = 4.666%

Taxation = (-12,705/999.148) * 100 = -1.272%

Net (Loss)/ Income for the year = (33,914/999.148) * 100 = 3.394%

2011:

Revenue = (949,298/949,298) * 100 = 100%

Cost of Sales = (-631,369/949,298) * 100 = -66.509%

Gross Profit = (317,929/949,298) * 100 = 33.491%

Underwriting Income = (3,095/949,298) * 100 = 0.326%

Selling, Marketing and Administrative Expenses = (-280,257/949,298) * 100 = -29.523%

Profit from Operations before the following = (40,767/949,298) * 100 = 4.294%

Other (Losses)/ Gains – net = (27,845/949,298) * 100 = -2.933%

Profit from Operations = (12,922/949,298) * 100 = 1.361%

Finance Costs = (-11,825/949,298) * 100 = -1.246%

Share of income from associated companies = (4,680/949,298) * 100 = 0.493%

47


Income before Taxation = (5,777/949,298) * 100 = 0.609%

Taxation = (-11,095/949,298) * 100 = -1.169%

Net (Loss)/ Income for the year = (-5,318/949,298) * 100 = -0.56%

2010:

Revenue = (877,828/877,828) * 100 = 100%

Cost of Sales = (-584,786/877,828) * 100 = -66.617%

Gross Profit = (293,042/877,828) * 100 = 33.383%

Underwriting Income = (3,154/877,828) * 100 = 0.359%

Selling, Marketing and Administrative Expense = (-253,130/877,828) * 100 = -28.836%

Profit from Operations before the following = (43,066/877,828) * 100 = 4.906%

Other (Losses)/Gains – net = (10,790/877,828) * 100 = 1.229%

Profit from Operations = (53,856/877,828) * 100 = 6.135%

Finance Costs = (-12,415/877,828) * 100 = -1.414%

Share of income from associated companies = (10,305/877,828) * 100 = 1.174%

Income before Taxation = (51,746/877,828) * 100 = 5.895%

Taxation = (-12,313/877,828) * 100 = -1.403%

Net (Loss)/ Income for the year = (39,433/877,828) * 100 = 4.492%

48


Common – size Balance Sheet: all assets accounts are expressed as a percentage of total assets,

all liabilities accounts are expressed as a percentage of total liabilities and all equity accounts are

expressed as a percentage of total equity.

2012:

Cash = (55,583/ 897,176) *100 = 6.20%

Trade and Other receivables = (108,988/ 897,176) * 100 = 12.15%

Prepaid Expenses = (12,285/ 897,176) * 100 = 1.37%

Due by associated companies = (7,768/ 897,176) * 100 = 0.87%

Reinsurance Assets = (6,977/ 897,176) * 100 = 0.78%

Current Income tax Assets = (2,697/ 897,176) * 100 = 0.3%

Inventories = (159,267/897,176) * 100 = 17.75%

Borrowings = (105,151/335,874) * 100 = 31.31%

Trade and other payables = (110,774/335,874) * 100 = 32.98%

Due to associated companies = (3,119/335,874) * 100 = 0.93%

Current income tax liabilities = (4,844/335,874) * 100 = 1.44%

Insurance Contracts = (11,032/335,874) * 100 = 3.28%

Property, Plant and Equipment = (357,827/897,176) * 100 = 39.88%

Investment Property = (13,496/897,176) * 100 = 1.5%

49


Intangible Assets = (44,815/897,176) * 100 = 5%

Investments in associated companies = (68,697/897,176) * 100 = 7.66%

Financial Investments = (40,375/897,176) * 100 = 4.5%

Deferred Income tax assets = (8,285/897,176) * 100 = 0.92%

Pension plan assets = (6,052/897,176) * 100 = 0.67%

Long-term trade and other receivables = (4,064/897,176) * 100 = 0.45%

Borrowings = (95,072/ 335,874) * 100 = 28.31%

Deferred income tax liabilities = (4,013/ 335,874) * 100 = 1.19%

Pension plan liabilities = (1,869/ 335,874) * 100 = 0.56%

Share Capital = (43,842/561302) * 100 = 7.81%

Other Reserves = (107,080/561302) * 100 = 19.08%

Retained Earnings = (302,842/561302) * 100 =80.84%

Non-controlling interests = (107,538/561302) * 100 = 19.16%

2011:

Cash = (47,152/887,556) * 100 = 5.31%

Trade and Other receivables = (118,707/887,556) * 100 = 13.37%

Prepaid Expenses = (10,699/887,556) * 100 = 1.21%

50


Due by associated companies = (4,932/887,556) * 100 = 0.56%

Reinsurance Assets = (10,209/887,556) * 100 = 1.15%

Current Income tax Assets = (2,451/887,556) * 100 = 0.28%

Inventories = (161,185/887,556) * 100 = 18.16%

Borrowings = (177938/340157) * 100 =52.31%

Trade and other payables = (110269/340157) * 100 = 32.42%

Due to associated companies = (3205/340157) * 100 = 0.94%

Current income tax liabilities = (2969/340157) * 100 =0.87%

Insurance Contracts = (14152/340157) * 100 = 4.16%



Intangible Assets = (40,571/887,556) * 100 = 4.57%





Long-term trade and other receivables = (937/887,556) * 100 = 0.11%

51


Borrowings = (85,658/340,157) * 100 = 25.18%

Deferred income tax liabilities = (3,713/340,157) * 100 = 1.09%

Pension plan liabilities = (2,253/340,157) * 100 = 0.66%

Share Capital = (43,337/547,399) * 100 = 7.92%

Other Reserves = (108,228/547,399) * 100 = 19.77%

Retained Earnings = (285,526/547,399) * 100 = 52.16%

Non-controlling interests = (110,308/547,399) * 100 = 20.15%

2010:

Cash = (65050/893848) * 100 = 7.28%

Trade and Other receivables = (96529/893848) * 100 = 10.8%

Prepaid Expenses = (9051/893848) * 100 = 1.01%

Due by associated companies = (8640/893848) * 100 = 0.97%

Reinsurance Assets = (8237/893848) * 100 = 0.92%

Current Income tax Assets = (4870/893848) * 100 = 0.54%

Inventories = (155725/893848) * 100 =17.42%

Borrowings = (109,263/319,272) * 100 = 34.22%

Trade and other payables = (99,502/319,272) * 100 = 31.17%

52


Due to associated companies = (2,443/319,272) * 100 = 0.77%

Current income tax liabilities = (2,857/319,272) * 100 = 0.89%

Insurance Contracts = (12,202/319,272) * 100 = 3.82%



Intangible Assets = (52,054/893,848) * 100 = 5.82%





Long-term trade and other receivables = (1,430/893,848) * 100 =0.16%

Borrowings = (86,582/319,272) * 100 = 27.12%

Deferred income tax liabilities = (4,912/319,272) * 100 = 1.54%

Pension plan liabilities = (1,511/319,272) * 100 =0.47%

Share Capital = (42,454/574,576) * 100 = 7.39%

Other Reserves = (112,841/574,576) * 100 = 19.64%

Retained Earnings = (308,491/574,576) * 100 = 53.69%

53


Non-controlling interests = (110,790/574,576) * 100 = 19.28%

Reviewer(s): Mario Francis, Candice Crichlow


The purpose of this test was to create a common size income statement and common size

balance sheet in order to find potential misstatements in the accounts. In preparation of the

common size income statement each line item was reported as a percentage of revenue. In

analysing the common size income statement it allowed us to determine how various

components of the income statement affect a company’s profit. In preparation of the common

size balance sheet each asset was expressed as a percentage of total assets, each liability was

expressed as a percentage of total liabilities and each equity account was expressed as a

percentage of total equity. This enabled us to ascertain a more accurate value of the company

over the years as the balance sheet changes in size.

The Findings

The preparation of both the common size income statement and the common size balance

sheet helped us to find any accounts in which they maybe potential misstatements. In analysing

the common size income statement we realized that potential misstatements may occur in gross

profit, selling, marketing and administrative expenses, other losses (gains), income before

taxation and net income. The same was done for the balance sheet and potential misstatements

may occur in inventory, accounts receivable, deferred tax liabilities.

54


The Conclusion

The auditor must perform more investigations in order to explain the reasons why in certain

years the account balances were constant and suddenly decreased. They should seek further

clarification and verify what were the reasons for such changes in the accounts that contained

potential misstatements.

55




Name(s) of the person who prepared it: Jamaal Rochester, Amelia Browne, Riyah Small

Date Prepared: November 1st 2013


Calculations

For analysing the accounts balances for accounts receivable, inventory and short and long term

debt various calculations were performed which are shown below.

Calculations under Accounts Receivable

Average accounts receivable: Beginning Balance for AR + Ending Balance for AR/ 2

Average accounts receivable year 2012 = 92873 + 92408 / 2 = 92641

Average accounts receivable year 2011 = 92408 + 83954/2 = 88181

Average accounts receivable year 2010 = 83954 + 79815/ 2 = 81885

Accounts receivable turnover: Revenue / Average Accounts Receivable

Accounts receivable turnover year 2012 =999148/92641 = 10.79

Accounts receivable turnover year 2011 = 949298/88181 = 10.77

Accounts receivable turnover year 2010 = 877828/81885 = 10.72

Day sales outstanding = 365/Turnover

56


Days sales outstanding year 2012 = 365 /10.79 = 33.8

Days sales outstanding year 2011 = 365/10.77 = 33.9

Days sales outstanding year 2010 = 365/10.72 = 34

Calculations under Inventory

Gross Margin % = Gross Profit/ Revenue

Gross Margin% 2012= 351639/999148 = 35.19%

Gross Margin % 2011 = 317929/949298 =33.49%

Gross Margin % 2010 =293042/877828=33.38%

Average inventory turnover = Beginning Inventory balance + Ending Inventory

balance /2

Average inventory turnover year 2012 = 162031+160393/2 = 161212

Average inventory turnover year 2011=156726 + 162031/2 = 159379

Average inventory turnover year 2010= 145826+156726/2 = 151276

Inventory turnover = COGS/Average Inventory

Inventory turnover year 2012= 647509/161212 = 4.02



57


Day inventory outstanding = 365/Inventory turnover

Day inventory outstanding year 2012= 365/4.02 = 90.9



Reviewer(s): Katrina Blackman, Melissa Odle, Candice Crichlow


The objective of the test was to analysis the account balances for accounts receivable,

inventory, and short-term debt to determine how well Goddard Enterprises Ltd is managing its

debt.

The Findings

The accounts receivables turnover ratio measures how efficient a company collects debts from

credit sales. The receivables turn over average for 2010-2012 is 10.76 times, which implies that

the company is doing well in collecting their sales. Moreover, they have an average day’s sale

ratio of 33.9 days, implying that they collect cash on credit sales in 33.9 days. According to the

inventory turnover and day inventory outstanding ratios Goddard Enterprises Ltd is steadily

improving on how fast it sells its products and services.

The Conclusion

The analysis showed that Goddard Enterprises is doing fairly well in terms of its asset

management as they don’t have significant difficulty in converting their inventory and services

into goods sold and services provided. However, in order to perform at their optimal best,

58


Goddard Enterprise Ltd would have to implement methods to be more efficient and effective in

how they manage their short term assets.

59

ACCT3043 - PRINCIPLES OF AUDITINGCASE GROUP PROJECT ASSESSMENT

GROUP REGISTERED FOR DAY / EVENING COURSE: Day Course

GROUP NUMBER: 20

ASSIGNED CASE:CONPANY NAME:Goddard Enterprises Limited

NAME: Katrina BlackmanID#: 411000787

GROUP MEMBERSCONTRIBUTION

TO

a b cd=

a+b+c e=d / 3

NAME

GROUP MEETING

S ASSIGNED TASKS

OVERALL COMPLETIO

N OF ASSIGNMEN

TAverage

score1 Katrina Blackman 5 5 5 15 5

2 Amelia Browne 0 3 2 51.66666

73 Candice Crichlow 5 5 5 15 54 Mario Francis 5 5 5 15 55 Melissa Odle 5 5 5 15 56 Jamaal Rochester 5 5 5 15 57 Riyah Small 5 5 5 15 5




GROUP NUMBER: 20

ASSIGNED CASE:CONPANY NAME:Goddard Enterprises

Limited

NAME: Candice CrichlowID#: 410001599


TO

a b cd=

a+b+c e=d / 3

NAME

GROUP MEETING

S ASSIGNED TASKS

OVERALL COMPLETIO

N OF ASSIGNME

NTAverage


2 Amelia Browne 0 3 2 51.6666666


61




GROUP NUMBER: 20


Limited

NAME: Melissa OdleID#: 20051063


TO

a b cd=

a+b+c e=d / 3

NAME

GROUP MEETING

S ASSIGNED TASKS

OVERALL COMPLETIO

N OF ASSIGNME

NTAverage


2 Amelia Browne 0 3 1 41.3333333


62




GROUP NUMBER: 20


Limited

NAME: Jamaal RochesterID#: 411000265


TO

a b cd=

a+b+c e=d / 3

NAME

GROUP MEETING

S ASSIGNED TASKS

OVERALL COMPLETIO

N OF ASSIGNME

NTAverage


2 Amelia Browne 0 2 2 41.3333333


63




GROUP NUMBER: 20


Limited

NAME: Mario FrancisID#: 411000106


TO

a b cd=

a+b+c e=d / 3

NAME

GROUP MEETING

S ASSIGNED TASKS

OVERALL COMPLETIO

N OF ASSIGNMEN

TAverage score

1 Katrina Blackman 5 5 5 15 52 Amelia Browne 0 3 3 6 23 Candice Crichlow 5 5 5 15 54 Mario Francis 5 5 5 15 55 Melissa Odle 5 5 5 15 56 Jamaal Rochester 5 5 5 15 57 Riyah Small 5 5 5 15 5

64




GROUP NUMBER: 20


Limited

NAME: Riyah SmallID#: 407000313


TO

a b cd=

a+b+c e=d / 3

NAME

GROUP MEETING

S ASSIGNED TASKS

OVERALL COMPLETIO

N OF ASSIGNME

NTAverage


2 Amelia Browne 3 2 51.6666666


65


CASE GROUP PROJECT ASSESSMENT

GROUP REGISTERED FOR DAY / EVENING COURSE: Day CourseGROUP NUMBER: 20

ASSIGNED CASE:CONPANY NAME:Goddard Enterprises Limited

NAME: Amelia BrowneID#: 408001863

GROUP MEMBERSCONTRIBUTION TO

a b c d= a+b+c e=d / 3

NAMEGROUP MEETINGS

ASSIGNED TASKS

OVERALL COMPLETION OF ASSIGNMENT

Average score

1 Katrina Blackman 5 5 5 15 52 Amelia Browne 0 3 3 6 23 Candice Crichlow 5 5 5 15 54 Mario Francis 5 5 5 15 55 Melissa Odle 5 5 5 15 56 Jamaal Rochester 5 5 5 15 57 Riyah Small 5 5 5 15 5

66

final auditing project

Documents

auditing project

administrative expense9profit

goddard enterprisesgroup

bakery operations

year percentage change

shrimp processing

meat processing

restaurant catering