ARBA MINCH UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

GROUP ASSIGNMENT;- CASE ANALYSIS ON LARAMIE WIRE

PROGRAM;- WEEKEND

BY
1. ABEL ANJULO ID PRBE/012/14

2.AZALECH MEBRATU ID PEWBE/005/14

SUBMITTED TO: TAMRAT G. (PHD CANDIDATE)

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Qn. 1.Perform analytical procedures to help you identify risk areas that indicate the
need for further attention during the audit, if any.
Answer;-The usage of analytical procedures is one way to increase the performance of
auditors. Easy analytical procedures evaluation, ratio analysis, pattern analysis, and common-
size financial statements are useful as methods to direct focus in the preparation and final audit
processes. Such techniques are often useful when used in combination with a minimum standard
of thorough research as a comprehensive study. There is a lot of detail that needs to be
addressed. How come the set-up process take six hours from start to finish? Determining the
dimension, we know the Laramie is inefficient in its preparation.
The company Laramie will provide quality assurance and consumers evaluate the service and
the goods to further enhance the goods. The auditor would evaluate the evidence and equate the
history with the current. When we evaluated, we can see an increase in the turnover rate from
the previous year. Not a positive indication for a margin of approval. As there is a strong growth
trend of profits, we need to consider why net income did not rise although their inventory
receivables did. If the market evolves, the business will continue to reassess the expense of
products and services and equate it with the current percentage of revenue.
This should usually be performed on an regular basis and should be regularly reported to the
Board of Directors. At last, because the business is in a transitional phase, placing the product
on the market, adequate financial reporting and efficiency will be closely watched. This would
insure that policy holders have adequate expertise and details before purchasing a stock after
Laramie was an IPO. By doing so, the Balance Statements and Income Analysis would be
accurately reported and sales will not be exaggerated.
Year 2002 2001 Change in no. %change
Sales $8,450,000 $8,150,000 300,000 4%
Cost of sales $6,242,500 $6,080,000 142,500 3%
FGI (Apprx.300mil lib-2002) $1,654,500 $1,175,000 479500 41%
CRI(aproxxxx.5.9bil lib-2002 $2,625,000 $1,650,000 975,000 59.1%
PI(approxx.1.1mil libs-2002) $224,500 $182,000 42,500 23.4%
Account payable $450,000 $425,000 25000 6%
Day purchase in a/p 43.6 days 44.2 days (0.6)days (1%)
Day sales in receivable 56.3 days 48.4 days 7.9 days 16%

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There are some of analytical procedures that can be performed with the help of data given in the
case :
Percent Change in COGS;-
There was an increase of $142,500 from the previous year in COGS account as compared to
$300,000 increase in sales.
Average Day Sales in Receivables;
There was an increase of 16% from the year 2001 to 2002 in this ratio as compared to 4%
increase in the sales during the same period
Percent Changes in Inventories
There was an increase of 23.4% in the value of plastic inventory as compared to the previous
year, 59.1% in the value of copper inventory and of 41% in the value of finished goods
inventory.
Inventory as a percentage of sales
In the year 2001 inventory was 23% of sales while in the year 2002 it increased to 34% of sales.
This significant difference in percentage figure would require a further audit attention.
Expected Value of Copper Rod Inventory :
An expected amount of Copper Rod Inventory is determined by multiplying market price with
inventory quantity which comes out to be $2,832,000. This estimated amount is higher than the
reported amount of $2,625,000. This is in consistent with the accounting principle of valuing
inventory at lower of cost or market value.
Note;- $2,832,000= 5.9bil libs*0.48
Expected Value of Plastic Inventory
An expected amount of Plastic Inventory determined by multiplying market price with
inventory quantity which comes out to be $132,000. This estimated amount is less than the
reported amount of $224,500
Note;-132,000=1.1mil*0.12
Average Square Feet of Warehouse Space used Copper Rod Inventory :
Since Copper Rod is the only one kind of inventory for which calculation of average space
occupied can be made by auditors. Therefore, calculations made by auditors show that inventory
on hand are around 3,933 pallets. As each pallet occupies 36 square feet of space therefore the
total space occupied by copper rod inventory comes out to be 141,600 square feet. As this figure

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is higher than the number of 125,000 square feet that is allocated to the inventory, therefore it
indicates the need on the auditors part to follow-up on this issue.
Qn. 2;- Focus specifically on each of the five management assertions (existence or occurrence,
completeness, valuation or allocation, rights and obligations, and presentation and disclosure)
for the inventory account. Link any risks you identified for this account in question 1 to related
management assertion. Briefly explain any identified risks or issues for the inventory account
that require further attention, if any. Management assertions are implied or expressed
representation by management about classes of transactions and the related accounts in the
financial statements. As focusing on each of the five management assertions for the inventory
account
Answer ;- we discovered that there are some risky areas that indicate the need for further
attention during the audit

 Existence or occurrence : all items in the inventory account must physically exist and be
available for sale. Thus, the auditors should physically count finished goods, copper rod,
and plastic inventories, and determine actual increase of inventories at year end. Also,
they should select items from the inventory ledger and locate them and reconcile the
quantity.
 Completeness, the auditors should make sure that all existing inventories have been
recorded completely. Go around the warehouse and ensure all the inventories are
recorded in the inventory ledger.
 Valuation or allocation : the auditors should make sure that Laramie wire manufacturing
sticks with one valuation method find out if there is any scrap inventory that needs to be
recorded and written off, and ask about obsolescence items.
 Rights and obligation : the auditor should ask them if there is any consigned inventory at
their warehouse. If there is, those inventories should not be recorded in the company’s
inventory ledger
 Presentation and disclosure : the auditors should review the company’s financial
statement and ensure that their disclosure is consistent with their current processes
Following are the possible issues with inventory of Laramie that can be listed as a result of
analytical procedures being performed

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 Inventory as a percentage of sales has increased from 40% to 50.1% from 2001 to 2002.
This increase was on account of finished goods and copper rod inventories. Also,
inventory turnover ratio was increased from about 2.0 less than 1.4 from 2001 to 2002.
This indicates the potential issue related to assertions like valuation and existence.
Note;- 50.1%=(2,832,000+224,500+1,175,0000)/8,450,000
 The plastic inventory is appearing in balance sheet at more than the market value rather
than less of cost of market value. Therefore, it represents an issue related to the valuation
assertion
 The space that should be occupied by inventory is greater than what is available in the
warehouse of the company. Therefore, it represents an issue related to the existence
assertion