account audit

In a 2-3 page paper, complete the case below and submit to instructor. Review the income statement for Uden Supply Company and answer the following:

1. Describe the purpose of analytical procedures performed in the planning stage of the audit.
2. 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.
3. 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.
4. 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 COMPANY

Comparative Income Statement

Years Ended December 20X1, 20X2, and 20X3

(Thousands)

20X1 Audited

20X2 Audited

20X3 Audited

20X4 Expected

Sales

8,700

9,400

10,100

Cost of goods sold

6,000

6,500

7,000

Gross profit

2,700

2,900

3,100

Sales Commissions

610

660

710

Advertising

175

190

202

Salaries

1,061

1,082

1,103

Payroll taxes

184

192

199

Employee benefits

167

174

181

Rent

60

61

62

Depreciation

60

63

66

Supplies

26

28

30

Utilities

21

22

23

Legal and accounting

34

37

40

Miscellaneous

12

13

14

Interest expense

210

228

240

Net income before taxes

80

150

230

Incomes taxes

18

33

50

Net income

62

117

180