Laramie Account: Preparing for IPO and Analyzing Financial Statements

The Laramie account is a big account. It is a big account because this is the first time they are having a full-scale audit of their financial statements and they are planning to go public and become an initial public offering (PIP). Since this is our first time this is happening we have to very careful with the analytical procedures. Analytical procedures are reasonableness test auditors compare their estimates of account balances with those recorded by management. Analytical procedures must be applied in the planning stages of each audit, according to auditing standards.

After reviewing the data from 2010 - 2011 you noticed that all the accounts increase, expect for the both "Days" account, which decreased and the "market price for Copper Rod" which reminded the same. This information can raise a few questions for Laramie Company. For example, Sales increased by 4% from year 2010 to 2011 , while that same time p the Days Sales in Receivables increased by 16% ((55. 8-47. 9)/47. 9))*100. Why aren't these numbers closer in change? What did the company change about the policies on collecting their money, if any?

Another flag that can be thrown and raise question is about the inventory. Even though the price of the plastic decreased and the inventory increased, we have to make sure It's the right balance. Is the new price of inventory at the correct price and is the account receivables correct as well? What system are they using to create these fugues? The examples I provide for analytical procedures are risk that can happen with the existence and valuation with management assertions. For existence you have to ask, "Did this really happen and are the valid on the balance sheet?

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Valuation assertion is the issue of each of Individual Inventory, accounts receivable, and accounts payable accounts have the correct values and are not over/under stated. Existence and valuation assertions are the biggest concern with the Inventory. The Increases are mostly In finished good and copper rod Inventories. The plastics Inventory appears to be understated do to the change from 2010 to 2011 (. 190 to . 130). This drop In the market price should attract attention during the audit from the auditors.

The Inventory turnover (Sales/ Inventory) decreased from went from 4. 7% to 3. 0% from 2010 to 2011. These ratios point to potential concerns relating to the valuation and existence assertions. This comparison points to a possible concern relating to the valuation assertion. Lastly, the Inventory seems to be too big for the space that they are providing for It. Case 8. 1 Laramie By Subjugating the inventory increased, we have to make sure it's the right balance. Is the new price is the issue of each of individual inventory, accounts receivable, and accounts

Existence and valuation assertions are the biggest concern with the inventory. The increases are mostly in finished good and copper rod inventories. The plastics inventory appears to be understated do to the change from 2010 to 2011 (. 190 to . 130). This drop in the market price should attract attention during the audit from the auditors. The inventory turnover (Sales/ Inventory) decreased from went from 4. 7% to relating to the valuation assertion. Lastly, the inventory seems to be too big for the space that they are providing for it.

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