Expert answer:Analytical Procedures in Planning Stage of Audit P


Solved by verified expert:In a 2-3 page paper, complete the case belowDescribe the purpose of analytical procedures performed in the planning stage of the audit.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.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.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 COMPANYComparative Income StatementYears Ended December 20X1, 20X2, and 20X3(Thousands)20X1 Audited20X2 Audited20X3 Audited20X4 ExpectedSales8,7009,40010,100Cost of goods sold6,0006,5007,000Gross profit2,7002,9003,100Sales Commissions610660710Advertising175190202Salaries1,0611,0821,103Payroll taxes184192199Employee benefits167174181Rent606162Depreciation606366Supplies262830Utilities212223Legal and accounting343740Miscellaneous121314Interest expense210228240Net income before taxes80150230Incomes taxes183350Net income62117180

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