Mini project (GROUP 5)

Name: 1.      KALAIMATHI A/P MURUGAN 2.      JEYASHREE A/P   GANESAN 3.     AKMAL MUHAMMAD BIN AHMAD RIZAL	Class:  DAT 5B	URL:
Matrix No: 1.      10DAT20F2038 2.      10DAT20F2039 3.      10DAT21F2031	Group: GROUP 5
Rubric	Part C	Marks
Content at Mypoly Audit Blogspot	1
	2
	3
	Total Marks

  

Part A: Find the Annual Report

 

Get an annual report of the company during the period 2022 - 2023 in the main market by visiting https://www.bursamalaysia.com/trade/trading_resources/listing_directory/main_market. Download this report and upload it on www.mypolyaudit.blogspot.com along with the task to parts B and C.

 

Part B: Analyzing Problems

 

Calculate the financial ratios for 2 years (2022 and 2023) and provide an analysis of the significant ratio changes for 2 years. Please calculate the financial ratios in the table below:

 

	Financial ratio	2022	2023	Variance
		RM	RM	RM	%
A1	Turnover (credit)	103.19	14.02	(89.17)	76%
A2	Turnover (cash)	9.68	4.85	(4.83)	33%
A	Total turnover (A1 + A2)	112.87	18.87	(94)	71%
B	Trade purchases	(3,296,071)	(3,566,591)	270,520	4%
C	Gross profit	1,174,092	1,434,760	260,668	10%
D	Net profit	(1,476)	(22,032)	20,556	87%
E	Property, plant and equipment	1,458,344	1,592,064	133,720	4%
F	Inventories	901,377	764,182	(137,195)	8%
G	Trade Receivables	866,369	713,342	(153,027)	10%
H	Cash at bank/ in hand	367,365	539,765	172,400	19%
I	Total current assets	2,229,721	2,509,107	279,386	6%
J	Total assets	4,190,630	5,111,617	920,987	10%
K	Trade payables	320,335	309,773	(10,562)	1.68%
L	Bank overdrafts and short–term  borrowings	210,000	706,000	496, 000	54%
M          Total current liabilities		833,344	850,567	17, 223	1.02%
N           Total borrowing (including               overdrafts)		246,833	710,000	463, 167	48%
O           Net assets/shareholders` funds		272,269	274,483	2, 214	0.4%
Gross profit (%)           (C/A X 100)		1,040,216	7,603,392	6, 563, 176	76%
Net Profit (%)              (D/A X 100)		1,307.70	116,757	115, 449.3	98%
Receivables` credit       (G/A1 X 12)		100,750	5,088,031	4, 987, 280	96%
Creditors` settlement  (K/B X 12)		1.17	1.04	(0.13)	6%
Inventories turnover (B/F)		3.66	4.67	1.01	12%
Liquidity current ratio (I/M)		2.68	2.95	0.27	5%
Liquidity quick ratio  (I – F/M)		2,229,720	2,059,106	(170, 614)	4%
Gearing 1                      (N/J)		0.59	0.14	(0.45)	62%
Gearing 2                      (N/O)		0.91	2.59	1.68	48%

 

 

 

 

 

 

 

 

Part C: Finding and Conclusions

Based on the significant changes observed in the financial ratios between 2022 and 2023, you are required to: 

 

1.     Verify the potential impact of these variations on the company's business risk, going concern status and any relevant issue.

·       Business Risk:

v  External Factors: Variations can arise from external factors such as inflation, supply chain disruptions, geopolitical upheavals, competitor actions, reputational issues, or cyberattacks.

v  Economic Risks: Economic conditions, market changes, and industry trends can impact F&N’s operations and financial stability.

v  Financial Risks: High debt levels, inadequate liquidity, or negative cash flows pose risks to F&N’s financial health.

v  Operational Risks: Labor disputes, quality control issues, or operational disruptions may affect F&N’s ability to continue as a going concern.

v  Regulatory Risks: Changes in laws or enforcement actions can also impact F&N’s operations.

 

·       Going Concern Status:

v  Definition: Going concern assumes that F&N will continue operating for the foreseeable future and meet its obligations. If substantial doubt exists about this ability, adjustments to financial statements are necessary.

 

·       Assessment Steps:

v  Evaluate whether conditions indicate substantial doubt about F&N’s ability to continue within one year after financial statement issuance.

v  Consider relevant factors (economic, financial, operational) that impact F&N’s ability to meet obligations.

Ø  Disclosure: If substantial doubt exists, F&N must disclose this fact and provide reasons for the uncertainty.

 

·       Relevance to F&N Company:

v  Assess the specific variations affecting F&N, considering economic conditions, financial stability, operational challenges, and regulatory changes.

v  Monitor F&N’s liquidity, debt levels, cash flows, and operational performance.

v  Evaluate management’s plans to mitigate risks and ensure F&N’s continuity as a going concern.

 

2.     Prepare the steps would you take to corroborate the information obtained from this analytical procedure with other audit evidence, such as documentation supporting management's assertions and external sources of information.  

·       Review Documentation:

v  Examine relevant internal documentation provided by the company. This may include financial statements, management reports, and internal memos.

v  Verify that the analytical procedure results align with the data presented in these documents.

 

·       Assess Management Assertions:

v  Evaluate the management assertions related to the information being analyzed. These assertions include completeness, accuracy, existence, valuation, and rights and obligations.

v  Compare the analytical results with management’s assertions to identify any discrepancies.

 

·       External Sources:

v  Gather information from external sources such as industry reports, market data, economic indicators, and regulatory filings.

v  Cross-reference the analytical findings with external data to validate consistency and reasonableness.

 

·       Substantive Testing:

v  Perform substantive testing procedures to obtain direct evidence. These may include:

Ø  Vouching: Selecting specific transactions or balances and tracing them back to supporting documents.

Ø  Confirmation: Obtaining confirmations from third parties (e.g., banks, customers, suppliers) regarding balances or transactions.

Ø  Physical Inspection: Visiting physical locations to verify the existence of assets or inventory.

Ø  Reperformance: Independently recalculating financial figures.

Ø  Reconciliation: Comparing records to external sources (e.g., bank statements, supplier invoices).

 

·       Analytical Review:

v  Conduct a comprehensive analytical review by comparing current data with historical trends, industry benchmarks, and expectations.

v  Investigate any significant deviations or anomalies.

 

·       Expert Opinion:

v  Consult with industry experts or specialists to validate assumptions made during the analytical procedure.

v  Seek their opinion on the reasonableness of the results.

 

·       Management Inquiry:

v  Interview management personnel to gain insights into the underlying factors affecting the data.

v  Discuss any discrepancies and seek explanations.

 

·       Audit Committee Communication:

v  Share the results of the analytical procedure with the audit committee.

v  Discuss any concerns or findings that require further investigation.

 

·       Documentation:

 

v  Document all steps taken, including the rationale behind decisions made during the corroboration process.

v  Maintain a clear audit trail for future reference.

 

3.     Explain additional audit procedures would you recommend to understand the underlying reasons behind these variations.

·       Interview Key Personnel:

v  Schedule interviews with management, particularly those responsible for financial reporting and operations.

v  Seek insights into the specific events or changes that led to the observed variations.

v  Inquire about any significant business decisions, transactions, or external factors that may have impacted the financial data.

 

·       Transaction Testing:

v  Select a sample of individual transactions related to the variations.

v  Trace these transactions through the accounting system to understand their origin, processing, and impact on financial statements.

v  Investigate any anomalies or deviations from expected norms.

 

·       Comparative Analysis:

v  Compare the current year’s data with prior years’ financial statements.

v  Identify trends, patterns, and significant changes.

v  Analyze the reasons behind fluctuations in revenue, expenses, or other relevant metrics.

 

·       Industry Benchmarking:

v  Benchmark the company’s performance against industry peers.

v  Obtain industry-specific data on key performance indicators (KPIs) such as revenue growth, profit margins, and liquidity ratios.

v  Assess whether the company’s variations are consistent with industry norms.

 

·       Legal and Regulatory Compliance Review:

v  Evaluate compliance with relevant laws and regulations.

v  Investigate any legal disputes, pending litigation, or regulatory changes that may impact financial results.

v  Assess the potential financial implications of non-compliance.

 

·       Analyzing Non-Financial Data:

v  Consider non-financial data related to the business, such as customer satisfaction scores, employee turnover rates, or production efficiency.

v  Correlate non-financial metrics with financial variations to identify potential cause-and-effect relationships.

 

·       Scenario Analysis:

v  Conduct scenario-based assessments to simulate different business scenarios.

v  Explore how variations would change under different assumptions (e.g., changes in sales volume, pricing, or cost structure).

v  Assess the sensitivity of financial results to key variables.

 

·       Review Contracts and Agreements:

v  Examine contracts, leases, and agreements entered into by the company.

v  Look for terms that may impact financial performance (e.g., revenue recognition criteria, lease obligations, contingent liabilities).

 

·       External Expertise:

v  Consult with industry experts, economists, or specialists in specific areas (e.g., tax, legal, technology).

v  Seek their opinions on the variations and potential underlying causes.

 

·       Management Representations:

v  Obtain written representations from management regarding the accuracy and completeness of financial information.

v  Address any discrepancies or uncertainties directly with management.