Question

Current Attempt in Progress

The following data was taken from the production and accounting records for Casuccio Manufacturing, Inc.

		Unaudited 2023		Audited 2022		Audited 2021
Operating Data
Capacity in units		450,000		450,000		450,000
Production in units		450,000		400,000		300,000
Inventory in units		32,000		28,000		21,000
Financial Data ($000)
Total revenues		$35,200		$27,500		$21,200
Total assets		$23,000		$19,500		$15,700
Accounts receivable, net		$5,900		$4,300		$3,900
Bad debt expense		$175		$135		$105
Accounts receivable written off		$165		$125

2023 2022 2021

Sales to total assets 1.53 1.41 1.35

Sales to production 0.08   0.07 0.07

Revenue per unit sold 1.10 0.98 1.01

Accounts receivable growth to sale growth 1.33 0.35

Uncollectible accounts expenses to net credit sales 0.0050 0.0049 0.0050

Uncollectible accounts expense to accounts receivable written off 1.06 1.08 1.05

Accounts receivable turnover in days 61.18 57.07 67.15   

1. Describe the implications of the resulting ratios for the auditor’s audit strategy for the year 2023.

2. What specific assertions are likely to be misstated?

3. How should the auditor response in terms of potential audit tests?

Note: Completed calculated  

Answer 1

Answer:

a.

The following table provides solutions to the quantitative requirements in parts a through g:

Units sold in 20X9 is derived as follows: ($28,000 + $450,000) - $32,000 = $446,000

b.

1.

Receivables are growing faster than sales. In addition, sales price per unit has gone up and the ratio of sales to total assets has increased. This might be evidence of problems with revenue recognition. In addition, during this period of accounts receivable growth, accounts receivable turnover days increased during the last year, and the uncollectable account expense to account receivable write-off has gone down. The auditor should also consider whether the allowance for doubtful accounts is adequate.

2.

The assertions that are likely to be misstated are: (1) the occurrence of revenues and the existence of receivables, (2) and the valuation of receivables and their net realizable value.

3.

The auditor is most likely to test the existence of receivables and the occurrence of related revenues with confirmations to customers. The auditor is most likely to use audit data analytics to test the valuation of receivables at net realizable value, along with using hindsight to evaluate the collection of receivables.