AUDIT PLANNING REPORT Case Solution
Finally, if we analyze the performance measures of the company apart from the sales growth and income growth, then the key performance indicators of the company such as same store road transportation fuel volume, return on capital employed, return on equity, road transportation fuel gross margin, growth of same store merchandise revenues and service gross margins are all reasonable performance objectives and they do not encourage aggressive accounting in any manner. This has been further discussed by performing the analytical procedures.
Assessing the Business Risks of the Client
After analyzing the business operations and the industry of the clients we need to assess the business risks facing the client. Management is the main source for assessing the business risks facing the company and we also need to consider the impact of all sorts of the external factors on the business of the company. The first significant business risk to which the operational results of the company are exposed to is the consistent changes in the road transportation fuel prices and the changes in the gross margins.
The changes in the external environment which are out of the control of the management include the market driven changes in the supply terms, the general economic and the political conditions, road transportation fuel price fluctuations. These all factors would influence the company’s gross margins and the selling prices of the road transportation fuels.
Apart from these business risks, the company is also exposed to significant fluctuations in the expenses due to its electronic payment modes and the stringent regulations regarding the tobacco products of the company.The environmental laws and the regulations are also another source of the business risks facing the company along with highly competitive nature of the industry. Other business risks might also occur such as leaks, spills, explosions, fires, work accidents, equipment failures and emissions. These all business risks could have a significant impact upon the financial statements of the company.
The most important part during the planning of the audit is to understand the business of the company and assess its business risks by applying a set of the analytical procedures for the company. One of the best analytical procedures is to assess the performance of the company with regard to its industry and the sector of the company. The ratio analysis for Alimentation Inc could reveal any unusual changes as compared to the industry average ratio or the ratios of the company as compared to its prior years. This would help us to identify the areas within the financial statements of Alimentation Inc which would be more susceptible to material misstatements and so that more attention would be given to those elements during the audit.
The management discussion and analysis report had stated that the company is a leader in the convenience store industry in Canada. Moreover, the company has a significant presence in Poland and it is also a leader in the convenience store and the road transportation within the Baltic and the Scandinavian countries. The company is operating in such an industry whose market is also captured by its key competitors.
If we analyze the key ratios which have been computed as shown in the appendix, then if we see the price earnings ratio for the current year 2015, it could be seen that the ratio has increased significantly and it is much higher as compared to the industry average. However, the trailing twelve months PE ratio is estimated to decline below the industry level. This shows that the confidence of the investors of the company would weaken over the next months for the year ended 2016. All the factors affecting the share price of the company will have to be examined……………..
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