May be owing to your big size, the previous audit company needed additional resources in terms of man and woman power and facilities to meet your needs. When the previous audit company held a meeting with the directors in which their responsibilities and the responsibilities of krypton were discussed in details. The Audit Company and krypton agreed on the terms of the audit engagement. The terms of engagement which they agreed upon were documented in a form of a letter of engagement. They then discussed and agreed on the basis on which the audit fee was to be computed and any billing arrangements. We then do not understand why this is still a problem yet to be solved
The last audited accounts were those for the period ended 31st December 2003. As we conduct this audit, making comparatives to the year 2004, it will make good sense if we first conduct an audit for the year 2004.
To determine the implications of the figures, analytical procedures are usually performed on the financial information. Analytical procedures consist of mainly trend and ratio analysis with information being inferred from the resulting figures. From the financial statements of the company the following was established.
Ordinarily a 10.16% increase in cost of sales should lead to a corresponding decrease in stocks. Yet in this case stocks have increased by 58.20%. The stock turnover ratio has also declined from 15.60 in 2004 to 10.86 in 2005. The stocks were expected to decrease and their increase might imply that employees could be selling their own goods brought from outside. The audit shall then focus on the existence of the stocks and their condition. In order to ascertain the genuineness of the stock figure, a revaluation test of the stocks will have to be performed to see whether their increase was as a result of a revaluation.