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ACC 410 Week 2 Assignment Analytical Procedures

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Analytical Procedures. In a 2-3 page paper, complete the case below and submit to instructor. Review the income statement for Uden Supply Company and answer the following:

  1. Describe the purpose of analytical procedures performed in the planning stage of the audit.
  2. Uden Supply has projected its 2004 gross profit at 31% of sales despite expectation for some shrinkage in margins. On the basis of Uden's operating performance in years 2001 - 2003 project your best guess for 2004. Project 2004 based on the incremental changes for each line item over the last three years.
  3. Uden’s unaudited financial statements for the current year show a 31 percent gross profit rate. Assuming that this represents a misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net income before taxes for 20X4.
  4. Indicate whether you believe that the difference calculated in part (c) is material. Explain your answer. (50-100 words).

Comparative income statement information for Uden Supply Company is presented in the accompanying table.

UDEN SUPPLY COMPANY Comparative Income Statement
Years Ended December 20X1, 20X2, and 20X3 (Thousands)

13

ACC410: Auditing Online

20X1 Audited

20X2 20X3 20X4

Audited Audited

9,400 10,100 6,500 7,000 2,900 3,100

660 710

190 202 1,082 1,103 192 199 174 181 61 62 63 66 28 30 22 23

37 40

13 14 228 240

150 230

Expected

Sales 8,700

Cost of goods sold Gross profit

6,000 2,700

Sales Commissions
Advertising 175 Salaries 1,061

Payroll taxes

Employee benefits

Rent

Depreciation

Supplies

Utilities

Legal and accounting

Miscellaneous Interest expense

Net income before taxes

610

184 167 60 60 26 21

34

12 210

80

Incomes taxes 18 33 50

Net income 62 117 180

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