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Hello Everyone,
This is my first time working as an auditor and i haven’t sat yet for my F8 paper, i am a bit confused with auditing my first firm, which a “recruitment agency” service type of firm. I am performing my analytical procedures at the planning stage and i am a bit confused on how the ratio analysis, is different from a company with products and the company I am auditing.
for example recruitment services provided is different from products sold in a supermarket, where by Products doesn’t quickly turn into cash.
PLEASE I NEED HELP!”How can I draw conculsions from the ratios calcualted based on the type of company i am audiitng
Thank you and good luck to all who is sitting for F8.
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Ratio analysis is a key indicator of an organisation’s financial position irrespective of industry. You will find all the information you require to compute the ratios from the organisation’s interim & past year final financial statements.
As for the interpretation of what this figures are telling you, you will need to:
1. Compare the current year ratios, from the interim FS against past years ratio.
You may be luck to find last financial year’s ratios on your firm’s audit work papers from last year.
2. Only work out the relevant ratios for the organisation you are auditing. For example you may find that Gross Profit margin is not very relevant in your case. what you will need to analyse is their liquidity ratios, net profit margin and return on capital employed.
3. discuss with management any significant shift in ratios to see whether they have a good reason.Obviously in a recruitment firm, any rtio to do with something like inventory will not be relevant. However, the following examples ratios are likely to still be relevant:
GP%
NP%
Admin costs/sales
Receivables collection period
Payables payment period
Current ratio
Average fee per post filled…
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