auditing Essay example
Undergraduate
Essay
Finance & Accounting
Pages 4 (1004 words)
Download 0
Name…………………………………………………………………………….xxxxxx Institution……………………………………………………………………….xxxxxx Course……………………………………………………………………………xxxxx Professor………………………………………………………………………….xxxxx @2013 Q1- Possible explanations for changes in net profit margin and gross profit margin Financial ratios are used in analyzing the performance of an entity and its trend over time…

Introduction

A high net profit margin indicates that a company converts its sales into profits fast. The net profit margin also considers costs associated with the sale of products. There are several factors which triggered a decrease in the net profit margins. They include: a. Inventories Even though, a company treats inventories as an asset in the balance sheet, the cost of sales are not reported until a sale is actually made. Therefore, it is possible to calculate the cost of sales in inventories. However, market fluctuations can reduce the value of inventories which in turn lead to devaluation of net profit margins. An economic slowdown leads to slow moving inventories and decreases company sales and causes a negative impact on net profit margins. b. Price changes Changes in price affect the number of units sold which in turn influences the profits. It is challenging to price items correctly especially in a perfect market. Therefore, the price point of a product is a primary factor responsible for decreasing net profit margin. A decrease in price may in turn cause a decrease in net profit margins. c. ...
Download paper
Not exactly what you need?

Related papers

Auditing process
This type of risk is known as engagement risk. The probabilities of different loss or damages that can be caused due to this type of risk can be a financial loss, loss of reputation, and ultimately leading to the downfall of the audit farm. Engagement risks can further be subdivided into three types of risks, namely 1) Client’s business risks, 2) Auditor’s business risk and 3) Audit risk. In…
Auditing
A report by an auditor is a complete review by a third party of the financial position and bookkeeping practices of a company as well as financial statements’ preparation. These financial statements include the statement of cash flows, the income statement and the statement of financial position of a company. In dissimilar contexts, other forms of reports may consist of a concise address to…
auditing
Overstating of revenues and the understating of expenses Revenues can be overstated so as to show that the company is doing well and that would attract new shareholders. The shareholders would be attracted by the increased revenues and that would imply that they would also get more dividends from the company because of the god performance of the company. The understating of expenses will mean that…
AUDITING
The paper will also indicate any recommendation on furthering the audit in case of an audit problem. Finally the paper will outline the actions following the further work done on the audit. Analysis of the Four Items Debtors During interim audit preparation, a list of who owes the company and the total amount they owe is drafted. According to the trial balance dated 31st March 2011, the amount…
Auditing
This report will discuss several audit problems which can impact the materiality of financial statements. Wentworth Brewster limited specializes with the manufacture of sports equipment. All the products are sold to specialist retailers and private member gym clubs. The company owns a large number of freehold premises than it generally requires. The surplus office is usually sub-let to three other…
auditing
As the financial statements are the representation of management, it becomes very important to maintain the reliability and authenticity of these statements in order to avoid fraudulent activities in their preparation. The auditors have the responsibility of expressing their views related to the maintenance of fairness by the management. They are authorized with the responsibility of assessing the…
auditing
The auditor is responsible for collecting and evaluating the evidence in order to make an opinion on the financial position of a company. In the contemporary business world, various changes have been experienced as auditors embark on addressing the challenges that face them as professionals. Quality auditing by independent auditors is a vital aspect in that it ensures that capital markets are…