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Case Study 8.1

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Individual Case Study (Case 8.1)

1) The objective of analytical procedures is to discover if there are any transactions or events that are not normal for the company or the industry. This includes amounts or ratios that change dramatically or may be very different from what the industry average is. The first thing for the auditors to look at is how the company is operating. According to the case study it takes an average of six hours for machine setup and the company is below that, which shows they are working efficiently. Then they need to analyze the company’s amounts and ratios in the4 current period versus the prior year. One thing to take a look at is the days sales in receivables increased from 48.4 days in 2004 to 56.3 days in 2005. Sales have not increased much but these figures show that the company is not collecting the money as fast as they were and they need to discover why. Inventories need to be looked at as well since the amounts have increased from the previous year. The finished goods inventory went from $1,175,500 in 2004 to $1,654,000 in 2005, the copper rod went from $1,650,000 in 2004 to $2,625,000 in 2005, and plastics inventory went from $182,000 in 2004 to $224,500 in 2005. The auditor needs to discover if the company has updated their standard costs because if they did not this may be the cause of the inventory price shift since values have most likely changed for the copper and plastic. If this is not the case then it needs to be determined why the increased amounts are occurring. Another thing of interest is that Laramie Wire MFG is planning on doing an initial public offering of its stock so special care should be taken when looking at the sales and the cost of goods sold. A company may feel the urge to overstate these items to make their company look good for potential investors. Also, assets and liabilities need to be analyzed to

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