Auditing Assignment Example | Topics and Well Written Essays - 1000 words

Auditing - Assignment Example in that location atomic number 18 many an(prenominal) factors reported in the profit and loss account that birth affected the companys profit. The most prominent of them being increase cost of sales and interest expenses.The major trends and tendencies in the companys fiscal fructify and performance for the current year as indicated by Adios Ltds financial statements discharge be assessed with the jock of the following factorsThe companys balance sheet shows that the company has enhanced its investment in tangible asset by 84% whereas the investment in the intangible assets of the company has been reduced by 80%. But boilersuit as compared to the previous year, the companys investment in total assets has been increased.Working capital is the capital, which remains with the company aft(prenominal) accounting for all the current liabilities of the company out of its current assets. This capital is required by each company to meet its short-term obl igations or liabilities without any hassles, whenever a need arises. Working capital can be obtained by subtracting a companys current liabilities from its current assets. The Adios Ltds total current liabilities are roughly 25% of its total current assets, which shows a good working capital position for the company.The companys fiIncreased Long-term BorrowingsThe companys financial statements indicate that the companys long-term debts and borrowing has been increased to a great extent. As compared to the previous year, the companys long-term debts have been increased by intimately 7 times. Consequently, the companys interest expense has also been 6 times more than that of the previous year.Increased SalesAccording to the Adios Ltds profit and loss account, the companys total sales are increased by 11.46% as compared to the previous year. Simultaneously, the companys cost of sales has also increased by 55%, which has resulted into a decline in the companys gross profit margin. Ad ios Ltds gross profit margin was about 55% in the year 2004, which has decreased to 23% in 2005 despite of an increase in companys sales. rock-bottom ProfitThe companys profit margin for the year 2005 has declined by 30% as compared to that of the year 2004. Company has shown many factors responsible for this in the financial statements. The most prominent of which being the increasing cost of sales and increasing interest expense resulting from an increasing trend in the companys long-term debts and borrowings.INFORMATION IMPORTANT TO BE ASKED BY AN AUDITORAn auditor needs to obtain the following information from the companys management in order to catch a better insight of companys financi