Auditing Project Analysis of Goddard Enterprises

ACCT 3043 Auditing 1
Auditing Project on Goddard Enterprises

Group #20 Members
Day Students
Katrina Blackman - 411000787
Amelia Browne - 4080001863
Candice Crichlow - 410001599
Mario Francis - 411000106
Melissa Odle - 20051063
Jamaal Rochester - 411000265
Riyah Small - 407000313
Lecturer: Robertine Chadderton
Due Date: 15
th
November, 2013
Auditing Project on Goddard Enterprises Limited

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Table of Contents
Company Profile ........................................................................................................................................... 4
Part A ............................................................................................................................................................ 5
Part B ............................................................................................................................................................ 8
Part C ............................................................................................................................................................ 9
Analysis of Financial Statement Account Balances ................................................................................... 9
Revenue ................................................................................................................................................ 9
Cost of Goods Sold ................................................................................................................................ 9
Selling, Marketing and Administrative Expense ................................................................................... 9
Profit from Operations and Other (Losses)/Gains ................................................................................ 9
Ratio Analysis ......................................................................................................................................... 10
Current Ratio ....................................................................................................................................... 10
Cash Ratio ........................................................................................................................................... 10
Quick Ratio .......................................................................................................................................... 10
Accounts Receivable Turnover ............................................................................................................ 11
Inventory Turnover ............................................................................................................................. 11
Debt to Equity ..................................................................................................................................... 11
Times Interest Earned ......................................................................................................................... 12
Profit Margin ....................................................................................................................................... 12
Return on Assets ................................................................................................................................. 12
Earning per Share (Basic) .................................................................................................................... 12
Part D .......................................................................................................................................................... 14
Misstatements from Common Size Income Statement .............................................................................. 20
Gross Profit ............................................................................................................................................. 21
Selling, Marketing and Administrative Expense ..................................................................................... 21
Employee Benefits Expense ................................................................................................................ 21
Depreciation Expense ......................................................................................................................... 21
Changes in Inventories of Finished Goods and Work in Progress ...................................................... 22
Other (Losses)/Gains: Net ....................................................................................................................... 22
The Gain on Disposal of Property, Plant and Equipment ................................................................... 22
Impairment of Intangible Assets ......................................................................................................... 23
Income before Taxation .......................................................................................................................... 23

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Net Income (Loss) ................................................................................................................................... 23
Misstatements from Common Size Balance Sheet ..................................................................................... 24
Inventory ................................................................................................................................................. 25
Accounts Receivable ............................................................................................................................... 25
Deferred Tax Liabilities ........................................................................................................................... 25
Part F ........................................................................................................................................................... 26
Part G .......................................................................................................................................................... 28
Appendix ..................................................................................................................................................... 38
Auditing Working Papers ........................................................................................................................ 38
ACCT3043 - PRINCIPLES OF AUDITING ................................................. Error! Bookmark not defined.
CASE GROUP PROJECT ASSESSMENT .................................................. Error! Bookmark not defined.


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Company Profile
Goddard Enterprises Ltd (GEL) has been operating since 1921 and is a publicly traded Barbadian
company, listed on Barbados Stock Exchange, with a varied business portfolio that encompasses
interests in the Caribbean as well as Central and South America.
GELs has subsidiary companies such as: airline catering, industrial and restaurant catering, meat
processing, bakery operations, automobile retail and automotive parts, real estate, the
manufacture of aerosols and liquid detergents, investments, rum distilling, general trading,
packaging, fish and shrimp processing, property rentals, general insurance, financing as well as
shipping agents and stevedoring.
The Group includes both subsidiaries, that are wholly owned or in which GEL has a majority
share holding and associated companies.
Mission Statement
To be successful and responsible while satisfying customers, suppliers, employees and
shareholders.
GEL elements of it success include Vision, Creativity, Expertise, Tenacity and Location. As part
of its growth strategy, it has been involved in acquisitions and has formed alliances and joint
venture arrangements with its partners.


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Part A
In order to analyse the year to year percentage change within the following financial
statement line items within the below table, we referred to Goddard Enterprises Limited
Financial Statements for the period 2010 to 2012.
Account Balance 2012 % Change
2012-2011
2011 % Change
2011-2010
2010
Revenue $999,148 5.25% $949,298 8.14% $877,828
Cost of Sales $647,509 2.56% $631,369 7.97% $584,786
Selling, Marketing
and Administrative
Expense
$302,998 8.11% $280,257 10.72% $253,130
Profit from
Operations
$51,146 295.81% $12,922 -76.01% $53,856
Income before
Taxation
$46,619 706.98% $5,777 -88.84% $51,746
Net (loss)/ Income for
the year
$33,914 -737.72% -$5318 -113.49% $39,433
Total Assets $897,176 1.08% $887,556 -0.70% $893,848
Total Liabilities $335,874 -1.26% $340,157 6.54% $319,272
Total Equity $561,302 2.54% $547,399 -4.73% $574,576
Table 1 showing the trend analysis of financial line items from Goddard Enterprise Limited Financial Statement (Figures
expressed in thousands)


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Based on Table 1 in Part A, we believed the account balances of the identified financial
statement are important because:
Revenue is the amount of money a company earns before any expenses are taken out.
Therefore it was chosen as a line item because it shows that the organisation may have
potential for future profitability.
Cost of sales is the cost that goes into creating the products in which the organisation
sells. This was also chosen as a line item because it determines the volume of business
that is needed to maintain in order to operate profitably.
Selling, Marketing and Administrative Expenses is the overall expenses which are both
direct and indirect. It is important for the organisation to record these expenses as this
figure represents the overall cost of the expenses incurred in the making of the products
or services offered and is linked to sales.
Profit from operations indicates to the financial users of the company the amount of
money earned from the organisations operations before interest and tax is deducted.
This account balance is important as this would influence the decision of current and
prospective investors.
Income before taxation is the money retained by the organisation before deducting taxes.
Therefore, it was chosen as a line time because it quantifies the operations and non-
operating profits of the organisation before taxes are considered.
Net (loss) / income for the year represents profit/loss earned by the organisation after all
the expenses including interest and tax of the company have been deducted from
revenues. Therefore, it was chosen as a line time because it measures the organisations
profitability for the year.

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Total assets balances represent the current and long term asset of the organisation. An
asset represents items currently owned by the organisation and adds value to the
organisation. Therefore it can be considered that an organisations assets are vitally
important for the organisations overall success.
Total liabilities are the aggregates of all debts the organisations is liable for and its
obligations to transfer something of value to another party. This account balance is
important as current and prospective investors use this balance to determine the liquidity
of the organisation.
Total equity is defined as the value of the assets contributed by the owners. Therefore, it
was chosen as a line item because it describes the total amount of equity that the
owners/investors have within the organisation.


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Part B
Within in this section we have calculated the current, cash, quick, debt to equity, times
interest earned, gross profit percent, profit margin, return on assets, accounts receivable,
inventory turnover and earnings per share (basic) ratios. This is illustrated in Table 2 below and
the ratio workings for this section are located within the Appendix.
Ratios 2012 2011 2010
Current Ratio 1.505 1.430 1.538
Cash Ratio 0.237 0.190 0.287
Quick Ratio 0.632 0.562 0.659
Accounts Receivable
Turnover
10.79 10.77 10.72
Inventory Turnover 4.02 3.96 3.87
Debt to Equity 0.60 0.62 0.56
Times Interest Earned 4.13 1.09 4.34
Gross Profit Percent 35.194% 33.491% 33.383%
Profit Margin 3.394 -0.56 4.49
Return On Assets 3.780 -0.599 4.412
Earnings per Share (Basic) 41.2 cents (17.6) cents 46.1 cents
Table 2 Illustrated the Ratios for the period 2010-2012 (Figures expressed in thousands)


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Part C
Within this section we have provided analysis based on the information within Table 1
and Table 2 illustrated above. This section is divided into two parts and these are:
Analysis of Financial Statement Account Balances
This section is based on the financial statement line items account balances within Table
1, selected from the Financial Statements of Goddards Enterprises Limited.
Revenue
It is evident for the period 2010-2012 Goddard Enterprises Limited continued to
experience growth within its revenue but compared to 2010-2011, the growth rate for 2011-2012
was significantly lower.
Cost of Goods Sold
Over the period of time, the cost of goods sold increased from 2010-2011 by 7.97%
whereas during 2011-2012 there was a slight increase but by only 2.56%.
Selling, Marketing and Administrative Expense
Goddard Enterprises Limited selling, marketing and administrative expense continuously
increased but the percentage rate of increase was 2.61% less than 2010-2011.
Profit from Operations and Other (Losses)/Gains
The companys profit from operations decreased during the period, the most drastic
decline was experienced in 2010-2011 where it reduced from $53,856 to $12,922 by -76.01%
due to the loss obtained within the section Other (Losses)/Gain within the Consolidated Income

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Statement. Overall the increase of the selling, marketing and administrative expense contributed
to the reduction of the companys profit from operations.
Ratio Analysis
Within this section our aim is to analyse the ratios identified and calculated within Table
2 above in Part B section.
Current Ratio
The current ratio examines the firms ability to meet short term debts and obligations
through the use of its short term assets. This ratio measures how the amount of current debt is
covered by current assets. Based on the above table, Goddards Enterprises Limited best year
2010 with respect to its ability to meet current obligation where the current assets peaked at
1.538 times that of its current liabilities. For the remaining fiscal years 2011-2012, even though
the companys current ratio decreased to 1.42(2011) and increased to 1.505(2012) this didnt
prevent the organisation from meeting its short term debts or obligations.
Cash Ratio
The cash ratio being the most conservative of the liquidity ratios measures the ability of
the organisations cash to cover its short term obligations. The decrease to 0.19 in 2011 indicates
that a change in cash and current liabilities affected the cash ratio for Goddard Enterprises Ltd,
luckily in 2012 there were signs of improvement as the ratio increased to 0.237.
Quick Ratio
Quick Ratio analyses the firms ability to meet its current obligations without certain
aspects of its current assets such as inventory. The quick ratio for Goddard Enterprises
decreased from 2010-2011 but in 2012 the ratio slightly increased from 0.562 to 0.632.

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Unfortunately these figures are all below 1.00 which indicates that the company is facing
challenges to meet short term liabilities. If the companys current liabilities continue to increase
and the organisation isnt able to convert inventory quickly enough in cash, the downturn in sales
would lead to a continuous decline in the quick ratio of the company as well as the increase need
to gain financing to meet its short term debt and obligation.
Accounts Receivable Turnover
The accounts receivable turnovers over from 2012 2010 was at a very high rate which
shows its much more favourable to have a high accounts receivable turnover. It shows the
number of times a business collects it average accounts receivables balance during a period.
Inventory Turnover
The inventory turnover for 2012 was 4.02, for 2011 was 3.96 and for 2010 was 3.87. These
inventory turnovers are very low which maybe an indication of over-stocking which may pose
risk of obsolescence and increased inventory holding costs.
Debt to Equity
Debt to Equity measures what portion of debt and equity is employed to finance its
assets. The higher the ratio the more aggressive the firm has been in employing debt to finance
its growth and the higher the debt, the higher the interest expense. Goddard Enterprise Limited
debt to equity ratio increased from 2010-2011 from 0.56 to 0.62 but declined by 0.02 in 2012.
This trend indicates that Goddard Enterprises maintained a reasonable debt to equity ratio as a
conglomerate; its fiscal year performance indicated that most of the companys growth was
financed through equity.

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Times Interest Earned
The times interest earned ratio shows the companys financial health or position in
relation to debt. From the analysis the companys times interest earned ratio was 4.34(2010), it
made a drastic decline to 1.09(2011) and increased to 4.13(2012). During the year 2011, the
organisation experienced a drastic reduction of its EBIT compare to 2010 and 2012; this can be a
result of the current economic downturn.
Profit Margin
Profit Margin measures the relationship between net income and net sales; it shows how
much every dollar in sales is kept in profit. Goddard Enterprise worst financial performance was
in 2011, during this year the company reported a net profit margin of -0.56% which obviously
resulted in a net loss within that year. When compared to year 2010, 2011 reported a higher
revenue gain but its downfall was the high expenses experienced during that year. In 2012, the
company increased its performance reported an increase in its profit margin from -0.56% to a
significantly higher rate of 3.394%.
Return on Assets
Return on Assets indicates the amount of profits that were generated by invested capital
(assets). Just like the profit margin, the fiscal year 2011 net income loss illustrates the poor
performance compared to its positive net income returns from previous years. The ROA ratio for
2010 was 4.412 but due to the net income loss in 2011 reduced it to -0.60.
Earning per Share (Basic)
The Earnings per Share ratio represents the portion of a companys profit that is allocated
to each outstanding share of common stock and this ratio serves as an indicator of common

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stock
1
. Goddard Enterprises Limited, earnings per share (Basic) ratio drastically decreased from
46.1 cents to -17.6 cents during the period 2010-2011 while from 2011-2012 the ratio
significantly increased from -17.6 cents to 41.2 cents, from the above ratios it is evident that the
drastic decrease from 2010-2011 occurred due the companys overall net loss for the year 2011.
Investors should not be afraid to invest or continue to invest in Goddard Enterprises Limited due
to the 2011 net income loss of ($5,318) as in 2012 the company profit increased to 33,914 and
the earnings per share was up to 41.2 cents.

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http://www.investopedia.com/terms/e/eps.asp
Part D
Table 3: This Illustrates Goddard Enterprises Limited Common Size Consolidated Statement of Income for the Period 2010-2012
Goddard Enterprises Limited
Common - size Consolidated Statement of Income
For the years 2010, 2011 and 2012
Account 2012 2011 2010
Preliminary Balance % of
revenue
Audited Balance % of
revenue
revenue
Revenue $ 999,148.00 100.000% $ 949,298.00 100.000% $ 877,828.00 100.000%
Cost of Sales $ (647,509.00) -64.806% $ (631,369.00) -66.509% $ (584,786.00) -66.617%
Gross Profit $ 351,639.00 35.194% $ 317,929.00 33.491% $ 293,042.00 33.383%
Underwriting Income $ 4,145.00 0.415% $ 3,095.00 0.326% $ 3,154.00 0.359%
Selling, Marketing and Administrative
Expenses
$ (302,998.00) -30.326% $ (280,257.00) -29.523% $ (253,130.00) -28.836%
Profit From Operations before the
following
$ 52,786.00 5.283% $ 40,767.00 4.294% $ 43,066.00 4.906%
Other (Losses)/Gains - net $ (1,640.00) -0.164% $ (27,845.00) -2.933% $ 10,790.00 1.229%
Profit From Operations $ 51,146.00 5.119% $ 12,922.00 1.361% $ 53,856.00 6.135%
Finance Costs $ (12,393.00) -1.240% $ (11,825.00) -1.246% $ (12,415.00) -1.414%
$ 38,753.00 3.879% $ 1,097.00 0.116% $ 41,441.00 4.721%
Share of income from associated
companies
$ 7,866.00 0.787% $ 4,680.00 0.493% $ 10,305.00 1.174%
Income Before Taxation $ 46,619.00 4.666% $ 5,777.00 0.609% $ 51,746.00 5.895%
Taxation $ (12,705.00) -1.272% $ (11,095.00) -1.169% $ (12,313.00) -1.403%
Net (Loss)/ Income for the year $ 33,914.00 3.394% $ (5,318.00) -0.560% $ 39,433.00 4.492%

All accounts are expressed as a percentage of the revenue for
the year. The common size income statement reveals the trend
of expenses and profits.


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Breakdown of: 2012 2011 2010
revenue
Audited
Balance
% of
revenue
revenue
Cost of Sales and Selling, Marketing and
Administrative Expenses:

Depreciation $ 23,122.00 2.31% $ 23,071.00 2% $ 21,884.00 2.49%
Employee Benefits Expense $ 180,010.00 18.02% $ 167,531.00 18% $ 148,816.00 16.95%
Changes in Inventories of Finished Goods and Work
in Progress
$ 12,189.00 1.22% $ (3,239.00) 0% $ (7,886.00) -0.90%
Raw Materials and Consumables Used $ 599,966.00 60.05% $ 598,613.00 63% $ 557,841.00 63.55%
transportation $ 2,580.00 0.26% $ 2,475.00 0% $ 2,713.00 0.31%
Advertising Costs $ 12,091.00 1.21% $ 10,891.00 1% $ 11,894.00 1.35%
Provision for Impairment of Receivables $ 3,577.00 0.36% $ 1,669.00 0% $ 3,518.00 0.40%
Other Expenses $ 116,972.00 11.71% $ 110,615.00 12% $ 99,136.00 11.29%
Other (losses)/ gains - net:
(loss) / gain on disposal of financial investments $ (104.00) -0.01% $ 3,254.00 0.34% $ 1,161.00 0.13%
Gain on disposal of property, plant and equipment $ 883.00 0.09% $ 1,055.00 0.11% $ 835.00 0.10%
Interest income $ 1,767.00 0.18% $ 1,601.00 0.17% $ 1,887.00 0.21%
Rental income $ 3,453.00 0.35% $ 3,714.00 0.39% $ 3,425.00 0.39%
Gain arising on acquisition $ - $ 155.00 0.02% $ 6.00 0.00%
Loss on remeasurement of pervious equity interest in
associate at fair value
$ - $ (44.00) 0.00% $ -

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Table 4: This Outlines the Breakdown of Selling, Marketing and Administrative Expense and Other (Losses)/Gains Net

Dividends from other companies $ 337.00 0.03% $ 415.00 0.04% $ 400.00 0.05%
Amortization charge $ (1,988.00) -0.20% $ 1,134.00 0.12% $ (1,133.00) -0.13%
Impairment of intangible assets $ (3,683.00) -0.37% $ 13,986.00 1.47% $ (289.00) -0.03%
Gain arising on disposal of investment in associated
companies
$ - $ 863.00 0.09% $ -
Impairment of financial investment $ (50.00) -0.01% $ - $ (800.00) -0.09%
Fair value gains/ (loss) on revaluation of investment
property
$ 307.00 0.03% $ (148.00) -0.02% $ (486.00) -0.06%
Loss on revaluation of freehold land and buildings $ (514.00) -0.05% $ 418.00 0.04% $ 4,086.00 0.47%
Gain on wind - up of pension plan $ 66.00 0.01% $ - $ 882.00 0.10%
Hyperinflationary adjustment $ (2,114.00) -0.21% $ - $ 816.00 0.09%
Write - off of short - term investment $ - $ (9,710.00) -1.02% $ -
Write - off of associated companies $ - $ (14,298.00) -1.51% $ -

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Goddard Enterprises Limited
Common - size Consolidated Balance Sheet
For the years 2010, 2011 and 2012
2012 2011 2010
revenue
revenue
Audited
Balance
% of
revenue
Current Assets
Cash $ 55,583.00 6.20% $ 47,152.00 5.31% $ 65,050.00 7.28%
Trade and other receivables $ 108,988.00 12.15% $ 118,707.00 13.37% $ 96,529.00 10.80%
Prepaid Expenses $ 12,285.00 1.37% $ 10,699.00 1.21% $ 9,051.00 1.01%
Due by associated companies $ 7,768.00 0.87% $ 4,932.00 0.56% $ 8,640.00 0.97%
Reinsurance Assets $ 6,977.00 0.78% $ 10,209.00 1.15% $ 8,237.00 0.92%
Current income tax assets $ 2,697.00 0.30% $ 2,451.00 0.28% $ 4,870.00 0.54%
Inventories $ 159,267.00 17.75% $ 161,185.00 18.16% $ 155,725.00 17.42%
Total Current Assets $ 353,565.00 39.41% $ 355,335.00 40.04% $ 348,102.00 38.94%
Current Liabilities
Borrowings $ 105,151.00 31.31% $ 177,938.00 52.31% $ 109,263.00 34.22%
Trade and other payables $ 110,774.00 32.98% $ 110,269.00 32.42% $ 99,502.00 31.17%
Due to associated companies $ 3,119.00 0.93% $ 3,205.00 0.94% $ 2,443.00 0.77%
Current income tax liabilities $ 4,844.00 1.44% $ 2,969.00 0.87% $ 2,857.00 0.89%
Insurance Contracts $ 11,032.00 3.28% $ 14,152.00 4.16% $ 12,202.00 3.82%

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Total Current Liabilities $ 234,920.00 69.94% $ 248,533.00 73.06% $ 226,267.00 70.87%
Working Capital
Property Plant and Equipment $ 357,827.00 39.88% $ 344,367.00 38.80% $ 325,265.00 36.39%
Investment Property $ 13,496.00 1.50% $ 19,372.00 2.18% $ 23,557.00 2.64%
Intangible Assets $ 44,815.00 5.00% $ 40,571.00 4.57% $ 52,054.00 5.82%
Investments in associated companies $ 68,697.00 7.66% $ 70,652.00 7.96% $ 85,110.00 9.52%
Financial Investments $ 40,375.00 4.50% $ 43,739.00 4.93% $ 44,777.00 5.01%
Deferred Income tax assets $ 8,285.00 0.92% $ 6,824.00 0.77% $ 5,845.00 0.65%
Pension plan assets $ 6,052.00 0.67% $ 5,759.00 0.65% $ 7,708.00 0.86%
Long-term trade and other receivables $ 4,064.00 0.45% $ 937.00 0.11% $ 1,430.00 0.16%
$ 662,256.00 73.82% $ 639,023.00 72.00% $ 667,581.00 74.69%
Borrowings $ 95,072.00 28.31% $ 85,658.00 25.18% $ 86,582.00 27.12%
Deferred income tax liabilities $ 4,013.00 1.19% $ 3,713.00 1.09% $ 4,912.00 1.54%
Pension plan liabilities $ 1,869.00 0.56% $ 2,253.00 0.66% $ 1,511.00 0.47%
$ 561,302.00 $ 547,399.00 $ 574,576.00
Financed by:
Equity
Capital and reserves attributable to
equity holders of the company

Share Capital $ 43,842.00 7.81% $43,337 7.92% $42,454 7.39%
Other Reserves $ 107,080.00 19.08% $10,8228 19.77% $11,2841 19.64%

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Retained Earnings $ 302,842.00 53.95% 285526 52.16% 308491 53.69%
$ 453,764.00 80.84% 437091 79.85% 463786 80.72%
Non-controlling interests $ 107,538.00 19.16% 110308 20.15% 110790 19.28%
$ 561,302.00 100.00% 547399 100.00% 574576 100.00%
Table 5: This table illustrates Goddard Enterprises Common Size Balance Sheet for the period 2010-2012.

Misstatements from Common Size Income Statement
In the below table we have identified accounts from Goddard Enterprises Limited Common Size
Income Statement we believe have a concern for material misstatements.
Table 6: Illustrating the accounts from the Common Size Income Statement identified for concern of material misstatement.

Account Balance Estimate of $ Amount of Potential
Misstatement
Gross Profit Gross profit percentage in 2010 was 33.38% and in 2011
was 33.49% which shows that it remains in the same range
for these two years. However from 2011 to 2012 it gross
profit percentage was 35.19%.
Selling, Marketing and
Administrative Expense
These expenses increase between the period 2012 and 2010
by $48, 868.
Other Losses (Gains) There was a drastic increase in the Other Losses between
the period of 2010 and 2011 of $17,055; although there
were still other losses in 2012 it was still a major
improvement as there was a decrease by $26,205 compared
to 2011. Therefore, there is a need to determine the reasons
why they had made such a loss in 2011 compared to the
other years of 2010 and 2012.
Income before Taxation We can see that there must be a misstatement in the
balances for income before taxation because there is a
5.286% decreasing difference between 2011 and 2010
while there is 4.057% increase between 2012 and 2011.
Net Income (Loss) The company experienced a net loss in the year 2011; net
income subsequently declined by $34,115 from 2010 to
2011 and then fluctuated by $39,232 from 2011 to 2012.

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In reference to the material misstatement identified within Table 6, we have identified possible
recommendations as discussed below.
Gross Profit
This should be further investigated because the revenue account or account receivable can be
overstated by employees for a higher bonus or done to make the business look more attractive to
investors and creditors.
Selling, Marketing and Administrative Expense
In order to ascertain an overall understanding of the selling, marketing and administrative
expense figure, we thought it beneficial to look at the breakdown of each item within Goddard
Enterprises Limited Common Size Consolidated Statement of Income illustrated in Table 3.
Based on the breakdown the selected material misstatements are discussed below.
Employee Benefits Expense
From the breakdown it is evident that the employee benefits expense increased between
the period 2010 to 2012 from $148,816 to $180,010 and the percentage increase compared to
sales was 16.95% to 18.02%. Due to this drastic increase and based on this information it is
difficult to determine the amount Goddard Enterprises paid for salaries and wages. The auditor
needs to determine and be provided evidence to help determine whether there was an increase or
decrease in salaries for the given period as this section does not indicate what makes up the
employees benefit expense.
Depreciation Expense
The depreciation cost increased during the 2010-2012 period but when the depreciation
cost as a percentage to sales the percentage gradually decreases. The increase from 2010-2011

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could indicate the purchase of new assets and the slight increase from 2011-2012 of $51 could
represent a misstatement within the records. Based on this information the auditor needs to
determine the cause of the increase in the depreciation expense from 2010-2011 and also be
provided evidence as to why the depreciation expense increased by only $51 from 2011-2012 as
this can represent an understatement.
Changes in Inventories of Finished Goods and Work in Progress
The changes in inventories of finished goods and work in progress increased drastically
from 2011-2012(-3239 to 12,189) compared to 2010-2011(-7886 to -3239). The auditor needs to
determine what caused the drastic increase of the expense account changes in inventories of
finished goods and work in progress as this can be caused due to overstatement and
understatement of this account.
Other (Losses)/Gains: Net
In order to gain an understanding of the Other (Losses)/Gains: Net, we constructed a
table illustrating the breakdown of each item within Goddard Enterprises Limited Common Sixe
Consolidated Statement of Income as shown in Table 3. Based on this breakdown we can
discuss the breakdown of the selected possible material misstatements below:
The Gain on Disposal of Property, Plant and Equipment
From the breakdown of other (losses)/gains it can be determined that the gain on
disposal of property, plant and equipment figure increased from $835 to $1,055 in 2010-2011
and decreased from $1,055 to $883 in 2011-2012. Based on this information it is determined
that for each year the company sold property, plant or equipment and substantially gained on the
disposal of the item or items. There is a possibility of material misstatement as when the

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property, plant and equipment the depreciation expense should have reduced as well. Therefore
the auditor needs to review both the depreciation expense and gain on disposal of property, plant
and equipment.
Impairment of Intangible Assets
The impairment of intangible assets increased drastically from -$289 to $13,986
in 2010-2012 but decreased significantly from $13,986 to -$3683 in 2011-2012. Based
on this information the auditor needs to seriously determined and receive evidence
indicating what caused the significant increase in 2011 and the drastic decline in 2012.
Income before Taxation
For Income before Taxation, the auditor needs to determine what had caused the
organizations income before taxation to decline for the period 2011. The auditor also need to
obtain the necessary information to verify the figures within Table 3; since 2011 the
organizations income before taxation is significantly low compare to both 2010 and 2012.
Net Income (Loss)
For the Net Income (Loss), when compared to 2010 and 2012, the organisation made a
net loss in 2011. Based on this information the auditor need to carefully analyse the records
provided by Goddard Enterprises Limited to determine what caused the drastic net loss reported
by the organization in 2011.


24

Misstatements from Common Size Balance Sheet
In the below table we have identified accounts from Goddard Enterprises Limited Common Size
Balance Sheet we believe have a concern for material misstatements.

Account Balance Estimated of $ Amount of Potential
Misstatement
Inventory During the years 2010-2011 inventory increased
from 17.42% to 18.16% and decreased to 17.75 in
2012.
Trade and Other Receivable The trade and other receivables significantly
increased as indicated by the percentages from 10.80
in 2010 to 13.37 in 2011 but in 2012 decreased to
12.15%.
Deferred Income Tax Liabilities The Deferred Income Tax Liability was 1.54%
during 2010, decreased to 1.09% in 2011 and a
slight increase to 1.19 in 2012.
Table 7: Illustrating the accounts from the Common Size Balance Sheet identified for concern of material misstatement.
In reference to the material misstatement identified within Table 7, we have identified possible
recommendations as discussed below.

25

Inventory
The auditor needs to determine what caused the decline from 2011-2012 as potential
misstatements can occur due to inadequate provisions for handling damaged, obsolete or slow
moving stock.
Accounts Receivable
Due to the possibility of misstatements due to inadequate provisions for doubtful debts,
this can occur due to debts being outstanding too long to be recognised as fully recoverable.
Therefore the auditor would require further documentation from the company to make sure the
company has adequate provisions for doubtful debts to determine if they are recoverable or to be
written off as bad debt.
Deferred Tax Liabilities
The calculation of deferred tax liabilities can be quite difficult, therefore it can be a
possibility this figure maybe understated as the calculation may be done incorrectly. The auditor
has to determine if the calculations were made correctly as from the periods 2010-2012, the
deferred tax liabilities decrease from 1.54 to 1.09 then to 1.19 in 2012. Based on the
percentages, the auditor needs to determine what caused the significant decrease overall from
2010 compared to 2011-2012.


26

Part F
In general common sizing an income statement provides companies with better analytical
in-depth into its businesss performance and auditors of their clients business, by portraying each
line item in the income statement as a percentage of net revenues. This allows for the comparison
of the (quarterly or yearly) financial income statement on the same scale (once the companys
business strategy over the given time periods doesnt significantly vary) since common size
income statement data vary less than those of the actual raw figures in the income statement
which can be very misleading. In common sizing Goddard Enterprises Ltd Income Statement,
the potential possibility of misstatements would have been easily identifiable since any unusually
varying figures would stand out and raise an alert for further examination by the auditing
committee.
Goddard Enterprises Ltd trades under numerous company names over several different market
segments for example Purity Bakeries and Hanschell Inniss Ltd. On this basis (Based on this), it
can be derived that an ordinary common sized income statement doesnt provide enough
information about the companys true financial performance or position. If a Divisional Common
Size Income Statement was prepared, it would have revealed more accurate and concise
information about the companys performance over the time period being evaluated. This type of
analytic tool would have proved very beneficial as it would have pinpointed which divisional
areas attributed to the changes in net revenues generated over the years of 2010 2012, therefore
providing the auditor with a better understanding of its clients business. With this concept in
mind any irregular variants in the net revenues could have been easily traced back to the division
in which a possible misstatement could have been made, clearly highlighting which areas of
Goddard Enterprises Ltd needed further examination.

27

In summary it can be deduced that although a common size income statement provides a
sufficient analytical understanding of Goddard Enterprises Ltd, a divisional common size income
statement would have contained more precise and accurate information enabling us to efficiently
and effectively perform a better examination when evaluating for potential misstatements.

2


28

Part G

To perform an analysis of an item, or subject of the analysis or inquiry entails the process of
dismantling or separating that item into constituent parts or elements, in an effort to study its
nature, function and its meaning. In analyzing the long term liabilities of the Goddard
Enterprises Ltd, it the credit worthiness of this company should be determined.
Long-term liabilities are those obligations which are due at least one year into the future, and
include debt instruments such as bonds and mortgages. Analyzing the long-term liabilities of a
firm is done for assessing whether or not the firm is in a position to meet these long-term
liabilities. After analyzing the long-term liabilities of the firm, there should be a reasonable basis
for determining a company's financial strength. This is necessary to avoid buying the bonds of,
or lending to, a company that has the potential to become insolvent.
The long term liability for the Goddard Enterprises Ltd was analyzed using the debt to equity
ratio which revealed that the ratio of debt to equity for the Goddard Enterprises Ltd is 0.23. In
other words, out of every $1.00 spent to finance the business operations, $.23 is financed by
debt. This was determined by dividing the companys total long term debt, by the average of the
shareholders equity of the firm as follows:
Debt to Equity = Long Term Debt + Value of Leases
Average Shareholders Equity
= 95,072,000 + 4,013,000 + 1,900,000
453,800,000 + 437,100,000 /2

29

= 100,900,000
445,450,000
= 0.2265 or 0.23
Generally, a high debt to equity ratio is worrisome and could indicate that the company is in a
precarious position, since it may be highly levered. This level of debt to equity then means that
the Goddard Enterprises Ltd has a good debt ratio as the companys debt level is low, and as
such, it is exposed to less risk of interest rate increases or the risk of losing its current credit
rating.
Goddards short term debt, which is shown in the current liabilities section of the companys
Balance Sheet, is comprised of all debt which was incurred by the company and is due within
one year. The total current liabilities which totals $234,920,000 in 2012, has seen a reduction of
$13,613,000, down from $ 248,533,000. This shows that Goddard Enterprises Ltd was in good
financial standing over that period and as such was able to reduce both its long term and short
term liabilities. The following substantiates this:
Current Ratio: = Current Assets
Current Liabilities
= 353,565,000
234,920,000
= 1.5


30

So the current ratio for Goddard Enterprises Ltd is $1.50. This means that the company has
$1.50 of current assets for every $1.00 it has in current liabilities. It could also be said that they
have their liabilities covered 1.5 times over.
However, although a reduction is seen in the companys current assets in 2012 when compared
with the previous period, it was still substantially higher than the companys current liabilities
for the same year.
Accounts Receivable and Inventory
There are two elements in the cycle business which absorb cash. These are inventory and
receivables. For Goddard group and companies like it, a careful look at the correlation between
accounts receivables and inventories is also crucial.
When we compared our inventory account for the three year period, it showed that for 2010 the
companys inventory level was at its lowest. However, although this is true and one would
expect it to be moved (sold) at a faster rate than inventory levels for the two subsequent years
that was not the case. Investigations revealed that inventory in 2010 spent two days longer in the
companys books than it did in 2011 and yet another two days longer (four days) than it did in
2012.
Also, there was a significant build up in the companys inventory from the period 2010 to 2011
to the tune of $5,460 which caused the question of obsolescence to be raised. Also; will the
company be able to sell these products? If so, is there any proof that there is an increased
demand for the products? Will there be a surplus of inventory remaining in the inventory
account? If there is, what control measures are put in place to avoid pilferage?

31

The reduction in the inventory in 2012, to the tune of $1,918 from the 2011 period, could be due
to increased demand which resulted in increased sales. This should see an increase in the
companys cash levels for 2012 when compared to 2011.
For the year 2012 there was a 0.08 % decrease in the receivables from 2011, which signals that
the company had a good system in place for the collection of debts. Also, there was an increase
in the companys total revenue by 0.05 % for the corresponding period, along with a decrease in
inventory by 0.01 %. The quicker receivables are collected from debtors, the faster the company
is able to release cash from that business cycle back into the business. Likewise, the opposite is
also true. The rate at which the Goddard Enterprises Ltd was able to collect from debtors is
shown below:
Receivables Turnover Ratio for 2012 =Net credit Sales
Average Accounts Receivable
= 999,148
92641
= 10.79
Receivables Turnover Ratio for 2011 = Net credit Sales
= 949298
88181

32

= 10.77
Receivables Turnover Ratio for 2010 = Net credit Sales
= 877828
81885
= 10.72
Loosely speaking, it could be said that Goddard has collected outstanding credit amounts and re-
loaned same a total of 10.79 times for the year 2012; 10.77 times for the year 2011 and 10.72
times for the year 2012. Since these ratios are relatively constant, it means that the group has
experienced no drastic changes in its collections over the three year period. This may be clearer
if measured in days, so the following in days sales should apply:
Days Sales in Receivables for 2012 = 365 Days
Receivables Turnover
= 365
10.79
= 33.8 or 34 days


33

= 365
10.77
= 33.9 or 34 days
= 365
10.72
= 34 days
Therefore, the rate on which the Goddard Enterprises Ltd collected on its credit sales for the
entire three year period is 34 days.
Analyzed in conjunction with the receivables account is the inventory account. During 2012,
2011 and 2010 the Goddard Enterprises Ltd had a Cost of Goods Sold of $647,509,000, $631369
and $584786 respectively. Their Inventory Account exhibited a balance of $159,267, $161185
and $155725 for the same period. Using these figures, the Average Inventory Turnover ratios
for the periods 2010, 2011 and 2012 can be shown as follows.
Inventory Turnover Ratio for 2012 = Cost of Goods Sold
Average Inventory

34

= 647509
161212
= 4.02
Average Inventory
= 631369
159379
= 3.96
Average Inventory
= 584786
151276
= 3.87
This means that the Goddard Enterprises Ltd has sold off its entire inventory a total of 3.87 times
in 2010, 3.96 in 2011 and 4.02 in 2012. This means that the group saw a constant increase in the
rate at which its products are sold, or are moved from its warehouses over the three year period.
The benefits enjoyed here are higher revenue from increased sales and ultimately, an increase in
the companys profit margins. Since the rate at which the companys products are being sold has
increased, this should mean that the day in which the goods remain in inventory should have

35

decreased over the same period. Like the receivables account, this can also be measured in days
as calculated hereunder:
Days Sales in Inventory for 2012 =365 Days
Inventory Turnover
=365 Days
4.02
= 90.9
Days Sales in Inventory for 2011 = 365 Days
Inventory Turnover
= 365 Days
3.96
= 92.1
Days Sales in Inventory for 2010 = 365 Days
Inventory Turnover
= 365 Days
3.87
= 94.4


36

The number of days that the stock of the Goddard group spent on the companys inventory for
the year 2010 was 94 days. However, as predicted by the companys inventory turnover ratio,
this number declined in the year 2011 to a total of 92 days and then to 91 days in 2012. The
slower stock is sold or moved, the longer it ties up the companys supply of cash. It also
increases insurance and accommodation costs and interest charges. As a result of lowering
expense by reducing inventory, there will be an increase in the companys profit.


37

Bibliography
http://yourbusiness.azcentral.com/importance-revenue-10650.html
http://www.qfinance.com/performance-management-calculations/cost-of-goods-sold
http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/operating-
profit-2796
http://www.readyratios.com/reference/profitability/ebt_earnings_before_tax.html
http://www.money-zine.com/investing/investing/understanding-net-income
http://www.accountingbase.com/IntroALE1.html


38

Appendix
Auditing Working Papers
Name of the Client: Goddard Enterprises Ltd
Balance Sheet Date: 30 September 2012
Name(s) of the person who prepared it: Katrina Blackman, Melissa Odle, Jamaal Rochester,
Mario Francis, Amelia Browne
Date Prepared: November 1
st
2013
Subject of the Paper
Calculations
For the percentage change of account balances between 2012, 2011 and 2010
2012 2011:
Revenue = ((999,148 949,298) / 949,298) * 100 = 5.25%
Cost of Sales = ((647509 631369) / 631369) * 100 = 2.56%
Selling, Marketing and Administrative Expense = ((302,998 280257) / 280257) * 100 = 8.11%
Profit from Operations = ((51146 12922) / 12922) * 100 = 295.81%
Income before Taxation = ((46619 5777) / 5777) * 100 = 706.98%
Net (Loss)/ Income for the year = ((33914 (-5318)) / (-5318)) * 100 = -737.72%
Total Assets = ((897176 887556) / 887556) * 100 = 1.08%

39

Total Liabilities = ((335874 340157) / 340157) * 100 = -1.26%
Total Equity = ((561302 547399) / 547399) * 100 = 2.54%
2011 2010:
Revenue = ((949298 877828) / 877828) * 100 = 8.14%
Cost of Sales = ((631369 584786) / 584786) * 100 = 7.97%
Selling, Marketing and Administrative Expense = ((280257 253130) /253130) * 100 = 10.72%
Profit from Operations = ((12922 53856) / 53856) * 100 = -76.01%
Income before Taxation = ((5777 51746) / 51746) * 100 = -88.84%
Net (Loss)/ Income for the year = (((-5318) 39433) / 39433) * 100 = -113.49%
Total Assets = ((887556 893848) / 893848) * 100 = -0.7%
Total Liabilities = ((340157 319272) / 319272) * 100 = 6.54%
Total Equity = ((547399 574576) / 574576) * 100 = -4.73%
Reviewer(s): Candice Crichlow
Objective of the test
The raw data figures found in financial statements only portray the surface performance
of businesses. In order to get a more in-depth and detailed assessment of Goddard Enterprises
Ltd performance for the periods 2012-2011 and 2011-2010, we prepared several financial ratios
based on percentage changes, which provided us with more analytical insight on Goddards true

40

financial position . Findings based on ratio analysis are more accurate and reliable as these ratios
allow for comparison on the same basis/scale, eliminating any potential misguided assumptions
based on raw financial figures.
The Findings
Revenue is income generated from daily business activity such as the sale of goods or
services. Based on the revenue figures for the periods 2012-2011 and 2011-2010 it would appear
that Goddard Enterprises Ltd profitability increased, however, with reference to the revenue ratio
it was deduced that they actually incurred a loss of -2.89% between the periods 2012-2011 and
2011-2010.
It was further noted that Goddards total assets increased by 1.78% although they
incurred a significantly greater net loss of -737.72% in 2012-2011 to -113.49% in 2011-2010. On
further analysis, we were able to attribute this increase of net assets to the positive change in total
equity which implied that Goddard issued more shares to generate money for investments.
Moreover, profit from operations increased by 371.82% from -76.01% in 2011-2010 to 295.81%
in 2012-2011, this can be related to Goddards investments in their assets (be it new machinery)
that helped to reduce their expenses.
The Conclusion
The findings from the ratios show that Goddard Enterprises Ltd tried to implement, several
strategies and/or different alternatives that would enable them to cut back on expenses in order to
retain more profits from sales generate. Based on this, it is advised that further examinations be
conducted for potential misstatements.

41

Name(s) of the person who prepared it: Katrina Blackman, Melissa Odle, Mario Francis
rd
2013
Calculations of Ratios:
Current Ratio = (Current Assets/ Current Liabilities)
Cash Ratio = (Cash/ Current Liabilities)
Quick Ratio = ((Cash + Accounts Receivables)/ Current Liabilities)
Accounts Receivables Turnover Ratio = (Revenue / ((Beginning Balance for Accounts
Receivables + Ending Balance for Accounts Receivables) / 2))
Inventory Turnover Ratio = (Cost of Sales/ ((Beginning Inventory Balance + Ending Inventory
Balance) / 2))
Debt to Equity Ratio = (Total Liabilities / Total Equity)
Times Interest Earned = (Profits from Operations / Interest)
Gross Profit Percent = ((Revenue Cost of Sales) / Revenue) * 100)
Profit Margin = ((Net Income (Loss) / Revenue) * 100)
Return on Assets = (Net Income (Loss) / Total Assets)

42

Earnings per Share = Net Income (Loss) for the year attributable to equity holders of the
Company / Weighted average number of common shares in issue
2012:
Current Ratio = (353,565/234,920) = 1.505
Cash Ratio = (55,583/234,920) = 0.237
Quick Ratio = ((55,583 + 92,873) / 234,920) = 0.632
Accounts Receivables Turnover Ratio = (999,148 / ((92,873 + 92,408) / 2)) = 10.79
Inventory Turnover Ratio = (647,509 / ((162,031 + 160,393) / 2)) = 4.02
Debt to Equity = (335,874/561,302) = 0.60
Times Interest Earned = (51,146/12,393) = 4.13
Gross Profit Percent = ((999,148 647,509) / 999,148) * 100 = 35.194%
Profit Margin = (33,914/999,148) * 100 = 3.394
Return on Assets = (33,914/897,176) * 100 = 3.78
Earnings per Share = (24,696/59,935) = $0.412
2011:
Current Ratio = (355,335/248,533) = 1.43
Cash Ratio = (47,152/248,533) = 0.19
Quick Ratio = ((47,152 + 92,408) / 248,533) = 0.562

43

Debt to Equity = (340,157/547,399) = 0.62
Profit Margin = ((-5,318)/949,298) * 100 = -0.56
Return on Assets = ((-5,318)/887,556) * 100 = -0.599
Earnings per Share = ((-10,503)/59,799) = -$0.176
2010:
Current Ratio = (348,102/226,267) = 1.538
Cash Ratio = (65,050/226,267) = 0.287
Quick Ratio = ((65,050 + 83,954) / 226,267) = 0.659
Debt to Equity = (319,272/561,302) = 0.56

44

Profit Margin = (39,433/877,828) * 100 = 4.49
Return on Assets = (39,433/893,848) * 100 = 4.412
Earnings per Share = (27,516/59657) = $0.461
Reviewer(s): Jamaal Rochester
The objective of the test was to:
Evaluate Goddard Enterprises Ltd ability to pay its bills in the short run using
liquidity ratios.
Evaluate Goddard Enterprises Ltd ability to meet its long term obligations using
long term solvency ratios.
Examine how well Goddard utilizes its assets to generate revenues using turnover
ratios.
Evaluate how well Goddard manages its operations using profitability ratios.
The Findings
All three liquidity ratios decreased during 2011 relative to 2010 however these ratios then
increased in 2012, returning to almost the same level as in 2010. The total debt and debt to equity
ratios remain fairly constant over the three year period however the times interest earned ratio
decreased significantly from 2010 to 2011 but then increased from 2011 to 2012, returning to an
acceptable level. The days sales in receivables ratio increased from 2010 to 2011. This indicates
that Goddard took longer to collect on its credit sales during 2011. However this ratio then

45

decreased in 2012 to a level similar to that of 2010. The total asset increased steadily over the
three year period. This suggests that Goddard is using it assets more efficiently to generate
revenue. The profitability ratios followed the trend exhibited by most of the other ratios showing
a decrease from 2010 to 2011 and then an increase from 2011 to 2012.
The Conclusion
The ratios show a decrease in the Goddards financial health in 2011 however in 2012 these
ratios return to almost the same levels seen in 2010. This fluctuation warrants further
examination of the line items that affect these ratios. Net income, accounts receivable and cash
should all be examined to ensure that no material misstatements exist.


46

Name(s) of the person who prepared it: Katrina Blackman, Melissa Odle, Jamaal Rochester,
th
2013
Calculations
For the Common size Consolidated Statement of income, Balance sheet and analysing each for
potential misstatement.
Common - size consolidated statement of income: all accounts are expressed as a percentage
of revenue for the year.
2012:
Revenue = (999,148/999,148) * 100 = 100%
Cost of sales = (-647,509/999,148) * 100 = -64.806%
Gross Profit = (351,639/ 999,148) *100 = 35.194%
Underwriting income = (4,145/999,148)*100 = 0.415%
Selling, Marketing and Administrative Expenses = (-302,998/999,148) *100 = -30.326%
Profit from Operations before the following = (52,786/999148)*100 = 5.283%
Other (Losses)/Gains net = (-1,640/999,148) * 100 = -0.164%

47

Profit from Operation = (51,146/999,148) * 100 = 5.119%
Finance Costs = (-12,393/999,148) * 100 = -1.240%
Share of Income from Associated Companies = (7,866/999.148) * 100 = 0.787%
Income before Taxation = (46,619/999.148) * 100 = 4.666%
Taxation = (-12,705/999.148) * 100 = -1.272%
Net (Loss)/ Income for the year = (33,914/999.148) * 100 = 3.394%
2011:
Revenue = (949,298/949,298) * 100 = 100%
Cost of Sales = (-631,369/949,298) * 100 = -66.509%
Gross Profit = (317,929/949,298) * 100 = 33.491%
Underwriting Income = (3,095/949,298) * 100 = 0.326%
Selling, Marketing and Administrative Expenses = (-280,257/949,298) * 100 = -29.523%
Profit from Operations before the following = (40,767/949,298) * 100 = 4.294%
Other (Losses)/ Gains net = (27,845/949,298) * 100 = -2.933%
Profit from Operations = (12,922/949,298) * 100 = 1.361%
Finance Costs = (-11,825/949,298) * 100 = -1.246%
Share of income from associated companies = (4,680/949,298) * 100 = 0.493%

48

Income before Taxation = (5,777/949,298) * 100 = 0.609%
Taxation = (-11,095/949,298) * 100 = -1.169%
Net (Loss)/ Income for the year = (-5,318/949,298) * 100 = -0.56%
2010:
Revenue = (877,828/877,828) * 100 = 100%
Cost of Sales = (-584,786/877,828) * 100 = -66.617%
Gross Profit = (293,042/877,828) * 100 = 33.383%
Underwriting Income = (3,154/877,828) * 100 = 0.359%
Selling, Marketing and Administrative Expense = (-253,130/877,828) * 100 = -28.836%
Profit from Operations before the following = (43,066/877,828) * 100 = 4.906%
Other (Losses)/Gains net = (10,790/877,828) * 100 = 1.229%
Profit from Operations = (53,856/877,828) * 100 = 6.135%
Finance Costs = (-12,415/877,828) * 100 = -1.414%
Share of income from associated companies = (10,305/877,828) * 100 = 1.174%
Income before Taxation = (51,746/877,828) * 100 = 5.895%
Taxation = (-12,313/877,828) * 100 = -1.403%
Net (Loss)/ Income for the year = (39,433/877,828) * 100 = 4.492%

49

Common size Balance Sheet: all assets accounts are expressed as a percentage of total assets,
all liabilities accounts are expressed as a percentage of total liabilities and all equity accounts are
expressed as a percentage of total equity.
2012:
Cash = (55,583/ 897,176) *100 = 6.20%
Trade and Other receivables = (108,988/ 897,176) * 100 = 12.15%
Prepaid Expenses = (12,285/ 897,176) * 100 = 1.37%
Due by associated companies = (7,768/ 897,176) * 100 = 0.87%
Reinsurance Assets = (6,977/ 897,176) * 100 = 0.78%
Current Income tax Assets = (2,697/ 897,176) * 100 = 0.3%
Inventories = (159,267/897,176) * 100 = 17.75%
Borrowings = (105,151/335,874) * 100 = 31.31%
Trade and other payables = (110,774/335,874) * 100 = 32.98%
Due to associated companies = (3,119/335,874) * 100 = 0.93%
Current income tax liabilities = (4,844/335,874) * 100 = 1.44%
Insurance Contracts = (11,032/335,874) * 100 = 3.28%
Property, Plant and Equipment = (357,827/897,176) * 100 = 39.88%
Investment Property = (13,496/897,176) * 100 = 1.5%

50

Intangible Assets = (44,815/897,176) * 100 = 5%
Investments in associated companies = (68,697/897,176) * 100 = 7.66%
Financial Investments = (40,375/897,176) * 100 = 4.5%
Deferred Income tax assets = (8,285/897,176) * 100 = 0.92%
Pension plan assets = (6,052/897,176) * 100 = 0.67%
Long-term trade and other receivables = (4,064/897,176) * 100 = 0.45%
Borrowings = (95,072/ 335,874) * 100 = 28.31%
Deferred income tax liabilities = (4,013/ 335,874) * 100 = 1.19%
Pension plan liabilities = (1,869/ 335,874) * 100 = 0.56%
Share Capital = (43,842/561302) * 100 = 7.81%
Other Reserves = (107,080/561302) * 100 = 19.08%
Retained Earnings = (302,842/561302) * 100 =80.84%
Non-controlling interests = (107,538/561302) * 100 = 19.16%
2011:
Cash = (47,152/887,556) * 100 = 5.31%
Trade and Other receivables = (118,707/887,556) * 100 = 13.37%
Prepaid Expenses = (10,699/887,556) * 100 = 1.21%

51

Due by associated companies = (4,932/887,556) * 100 = 0.56%
Reinsurance Assets = (10,209/887,556) * 100 = 1.15%
Current Income tax Assets = (2,451/887,556) * 100 = 0.28%
Inventories = (161,185/887,556) * 100 = 18.16%
Borrowings = (177938/340157) * 100 =52.31%
Trade and other payables = (110269/340157) * 100 = 32.42%
Due to associated companies = (3205/340157) * 100 = 0.94%
Current income tax liabilities = (2969/340157) * 100 =0.87%
Insurance Contracts = (14152/340157) * 100 = 4.16%
Intangible Assets = (40,571/887,556) * 100 = 4.57%
Long-term trade and other receivables = (937/887,556) * 100 = 0.11%

52

Borrowings = (85,658/340,157) * 100 = 25.18%
Deferred income tax liabilities = (3,713/340,157) * 100 = 1.09%
Pension plan liabilities = (2,253/340,157) * 100 = 0.66%
Share Capital = (43,337/547,399) * 100 = 7.92%
Other Reserves = (108,228/547,399) * 100 = 19.77%
Retained Earnings = (285,526/547,399) * 100 = 52.16%
Non-controlling interests = (110,308/547,399) * 100 = 20.15%
2010:
Cash = (65050/893848) * 100 = 7.28%
Trade and Other receivables = (96529/893848) * 100 = 10.8%
Prepaid Expenses = (9051/893848) * 100 = 1.01%
Due by associated companies = (8640/893848) * 100 = 0.97%
Reinsurance Assets = (8237/893848) * 100 = 0.92%
Current Income tax Assets = (4870/893848) * 100 = 0.54%
Inventories = (155725/893848) * 100 =17.42%
Borrowings = (109,263/319,272) * 100 = 34.22%
Trade and other payables = (99,502/319,272) * 100 = 31.17%

53

Due to associated companies = (2,443/319,272) * 100 = 0.77%
Current income tax liabilities = (2,857/319,272) * 100 = 0.89%
Insurance Contracts = (12,202/319,272) * 100 = 3.82%
Intangible Assets = (52,054/893,848) * 100 = 5.82%
Long-term trade and other receivables = (1,430/893,848) * 100 =0.16%
Borrowings = (86,582/319,272) * 100 = 27.12%
Deferred income tax liabilities = (4,912/319,272) * 100 = 1.54%
Pension plan liabilities = (1,511/319,272) * 100 =0.47%
Share Capital = (42,454/574,576) * 100 = 7.39%
Other Reserves = (112,841/574,576) * 100 = 19.64%
Retained Earnings = (308,491/574,576) * 100 = 53.69%

54

Non-controlling interests = (110,790/574,576) * 100 = 19.28%
Reviewer(s): Mario Francis, Candice Crichlow
The purpose of this test was to create a common size income statement and common size
balance sheet in order to find potential misstatements in the accounts. In preparation of the
common size income statement each line item was reported as a percentage of revenue. In
analysing the common size income statement it allowed us to determine how various
components of the income statement affect a companys profit. In preparation of the common
size balance sheet each asset was expressed as a percentage of total assets, each liability was
expressed as a percentage of total liabilities and each equity account was expressed as a
percentage of total equity. This enabled us to ascertain a more accurate value of the company
over the years as the balance sheet changes in size.
The Findings
The preparation of both the common size income statement and the common size balance
sheet helped us to find any accounts in which they maybe potential misstatements. In analysing
the common size income statement we realized that potential misstatements may occur in gross
profit, selling, marketing and administrative expenses, other losses (gains), income before
taxation and net income. The same was done for the balance sheet and potential misstatements
may occur in inventory, accounts receivable, deferred tax liabilities.


55

The Conclusion
The auditor must perform more investigations in order to explain the reasons why in certain
years the account balances were constant and suddenly decreased. They should seek further
clarification and verify what were the reasons for such changes in the accounts that contained
potential misstatements.


56

Name(s) of the person who prepared it: Jamaal Rochester, Amelia Browne, Riyah Small
st
2013
Calculations
For analysing the accounts balances for accounts receivable, inventory and short and long term
debt various calculations were performed which are shown below.
Calculations under Accounts Receivable
Average accounts receivable: Beginning Balance for AR + Ending Balance for AR/ 2
Average accounts receivable year 2012 = 92873 + 92408 / 2 = 92641
Average accounts receivable year 2011 = 92408 + 83954/2 = 88181
Average accounts receivable year 2010 = 83954 + 79815/ 2 = 81885
Accounts receivable turnover: Revenue / Average Accounts Receivable
Accounts receivable turnover year 2012 =999148/92641 = 10.79
Accounts receivable turnover year 2011 = 949298/88181 = 10.77
Accounts receivable turnover year 2010 = 877828/81885 = 10.72
Day sales outstanding = 365/Turnover

57

Days sales outstanding year 2012 = 365 /10.79 = 33.8
Days sales outstanding year 2011 = 365/10.77 = 33.9
Days sales outstanding year 2010 = 365/10.72 = 34
Calculations under Inventory
Gross Margin % = Gross Profit/ Revenue
Gross Margin% 2012= 351639/999148 = 35.19%
Gross Margin % 2011 = 317929/949298 =33.49%
Gross Margin % 2010 =293042/877828=33.38%

Average inventory turnover = Beginning Inventory balance + Ending Inventory
balance /2
Average inventory turnover year 2012 = 162031+160393/2 = 161212
Average inventory turnover year 2011=156726 + 162031/2 = 159379
Average inventory turnover year 2010= 145826+156726/2 = 151276
Inventory turnover = COGS/Average Inventory
Inventory turnover year 2012= 647509/161212 = 4.02

58

Day inventory outstanding = 365/Inventory turnover
Day inventory outstanding year 2012= 365/4.02 = 90.9
Reviewer(s): Katrina Blackman, Melissa Odle, Candice Crichlow
The objective of the test was to analysis the account balances for accounts receivable,
inventory, and short-term debt to determine how well Goddard Enterprises Ltd is managing its
debt.
The Findings
The accounts receivables turnover ratio measures how efficient a company collects debts from
credit sales. The receivables turn over average for 2010-2012 is 10.76 times, which implies that
the company is doing well in collecting their sales. Moreover, they have an average days sale
ratio of 33.9 days, implying that they collect cash on credit sales in 33.9 days. According to the
inventory turnover and day inventory outstanding ratios Goddard Enterprises Ltd is steadily
improving on how fast it sells its products and services.
The Conclusion
The analysis showed that Goddard Enterprises is doing fairly well in terms of its asset
management as they dont have significant difficulty in converting their inventory and services
into goods sold and services provided. However, in order to perform at their optimal best,

59

Goddard Enterprise Ltd would have to implement methods to be more efficient and effective in
how they manage their short term assets.

ACCT3043 - PRINCIPLES OF AUDITING

CASE GROUP PROJECT ASSESSMENT

GROUP REGISTERED FOR DAY / EVENING
COURSE: Day Course

GROUP NUMBER: 20

ASSIGNED CASE:CONPANY NAME:
Goddard Enterprises
Limited

NAME: Katrina Blackman

ID#: 411000787

GROUP MEMBERS

CONTRIBUTION
TO

a b c
d=
a+b+c e=d / 3

NAME
GROUP
MEETING
S ASSIGNED TASKS
OVERALL
COMPLETIO
N OF
ASSIGNMEN
T

Average
score
1 Katrina Blackman 5 5 5 15 5
2 Amelia Browne 0 3 2 5
1.66666
7
3 Candice Crichlow 5 5 5 15 5
4 Mario Francis 5 5 5 15 5
5 Melissa Odle 5 5 5 15 5
6 Jamaal Rochester 5 5 5 15 5
7 Riyah Small 5 5 5 15 5


61



COURSE: Day Course

GROUP NUMBER: 20

Goddard Enterprises
Limited

NAME: Candice Crichlow

ID#: 410001599

GROUP MEMBERS

CONTRIBUTION
TO

a b c
d=
a+b+c e=d / 3

NAME
GROUP
MEETING
S ASSIGNED TASKS
OVERALL
COMPLETIO
N OF
ASSIGNME
NT

Average
score
1.6666666
67


62



COURSE: Day Course

GROUP NUMBER: 20

Goddard Enterprises
Limited

NAME: Melissa Odle

ID#: 20051063

GROUP MEMBERS

CONTRIBUTION
TO

a b c
d=
a+b+c e=d / 3

NAME
GROUP
MEETING
S ASSIGNED TASKS
OVERALL
COMPLETIO
N OF
ASSIGNME
NT

Average
score
1.3333333
33


63



COURSE: Day Course

GROUP NUMBER: 20

Goddard Enterprises
Limited

NAME: Jamaal Rochester

ID#: 411000265

GROUP MEMBERS

CONTRIBUTION
TO

a b c
d=
a+b+c e=d / 3

NAME
GROUP
MEETING
S ASSIGNED TASKS
OVERALL
COMPLETIO
N OF
ASSIGNME
NT

Average
score
1.3333333
33


64



COURSE: Day Course

GROUP NUMBER: 20

Goddard Enterprises
Limited

NAME: Mario Francis

ID#: 411000106

GROUP MEMBERS

CONTRIBUTION
TO

a b c
d=
a+b+c e=d / 3

NAME
GROUP
MEETING
S ASSIGNED TASKS
OVERALL
COMPLETIO
N OF
ASSIGNMEN
T

Averag
e score
2 Amelia Browne 0 3 3 6 2


65



COURSE: Day Course

GROUP NUMBER: 20

Goddard Enterprises
Limited

NAME: Riyah Small

ID#: 407000313

GROUP MEMBERS

CONTRIBUTION
TO

a b c
d=
a+b+c e=d / 3

NAME
GROUP
MEETING
S ASSIGNED TASKS
OVERALL
COMPLETIO
N OF
ASSIGNME
NT

Average
score
2 Amelia Browne

3 2 5
1.6666666
67


66


GROUP REGISTERED FOR DAY /
EVENING COURSE: Day Course

GROUP NUMBER: 20

Goddard Enterprises
Limited

NAME: Amelia Browne

ID#: 408001863

GROUP MEMBERS

CONTRIBUTION TO

a b c d= a+b+c e=d / 3

NAME
GROUP
MEETINGS
ASSIGNED
TASKS
OVERALL COMPLETION OF
ASSIGNMENT
Average
score
2 Amelia Browne 0 3 3 6 2

Auditing Project Analysis of Goddard Enterprises

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Auditing Project on Goddard Enterprises

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