Question

You are on your first audit of a local government and part of your job is to evaluate financial ratios. The partner on the job told you that analysis of financial ratios alone is not sufficient for assessing the economic condition of the government entity. Identify at least five other factors that you think should be considered in assessing the entity’s economic condition and why they are important.

Answer 1

Different elements that ought to be considered in evaluating the substance's financial condition

1 Labour Costs

2. Interest Rates

3. Government Policy

4.Taxes

5. Exchange Rates

The Importance of these variables:

1. Labour Costs : It is a significant factor that influences the economy. Numerous nations began redistributing of work from different nations. A major model for this is USA . which redistribute the work at significant level. They begins the plant or creation where work is modest. Which impact the monetary state of the nation and the business.

2. Interest rates : It influences the liquidity of money in the economy. With an expansion in speculation income in nation reduction and result in decline in liquidity of nation though with a lessening in venture income in nation increment and result in an increment in liquidity of nation.

Better yield on speculation will draw in investors.But if the financing costs on credit increment income in nation reduction and result in a lessening in liquidity of nation though with the diminishing in financing cost over advance income in nation increment and result in the expansion in liqudity of country.So, the loan cost influences the economy.

3. Government Policies : With Change or adjustment in law economy of nation changes . For ex: its goverment make a law that alcohol ought to be boycott in the nation it will influence organizations managing it, their workers and retailers at expansive level. So also, any approach made by the legislature will influence the economy.

4. Taxes : The duty rates influences the cost of products and ventures at significant level which influences the economy of the nation.

5.Exchange Rates : Exchange comes into picture in the event of import and fare of merchandise and ventures. It influence the universal installment and cost of merchandise and ventures which influences the economy.