When Auditing Global Alliance Industries, Inc

question 87

Essay

When auditing Global Alliance Industries, Inc., the auditor performed extensive analytical procedures and found
the following:
(a) The commission expenses as a percentage of sales has stayed constant for several years, but it has increased
significantly in the current year. However, commission rates have not changed.
(b) The rate of inventory turnover has steadily decreased for the past four years.
(c) The inventory as a percentage of current assets has steadily increased for the past four years.
(d) The number of days’ sales in accounts receivable has steadily increased for three years.
(e) The allowance for uncollectible accounts as a percentage of accounts receivable has steadily decreased for
three years.
(f) The absolute amounts of depreciation expense and depreciation expense as a percentage of gross fixed assets
are significantly smaller than in the preceding year.
REQUIRED:
(1) Evaluate the significance of not disclosing or adjusting these items, if material, in the fair presentation of
financial statements.
(2) When assessing disclosures, what criteria do auditors use?

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Definitions:

Quality

The quality of an item when compared to other similar items; how excellent something is.

Categorical Proposition

A statement or assertion in logic that relates two classes or categories in a way that all, some, or none of the members of one class are included in the other.

Standard Form O

A categorical proposition of the form "Some S are not P," representing a specific type of statement in traditional logic.

Subject

In grammar, the noun, pronoun, or noun phrase that performs the action of or acts upon the verb. In philosophy, an individual observer or agent experiencing and perceiving phenomena.