Question

The audit team is preparing to audit a new client in the fashion industry. The client imports garments from manufacturers in several Asian countries and retails them in a chain of shops located throughout the United States.
You have access to the following information for the client:
a. prior period financial statements
b. anticipated results for the current year
c. industry averages
Required
Discuss how you would use the information to understand your new client.

Answer 1

When the auditing team is preparing to audit a new client in the fashion industry, then its information could be gathered through the prior period’s financial statements alongwith current years and industry averages data available. The following informations are gathered through data available:

1. The ratio between the domestic and international transactions.
2. Number of offices in various parts of the different countries.
3. The volume of audit work which team has to tackle with.
4. The level of the operations of the company in comparison with industry average data available.
5. The number of selling counters in USA.
6. The average sales volume per selling counter of the company.
7. The comments of the prior period Auditors about the financial position and business operation of the company.
8. The various financial ratios drawn from the financial statements provides the control informations of finance and operations.
9. The comparison of company’s ratios with the industry’s ratio figure will provide informations regarding the level of existence of company at industry scale.
10. The stock-holders’ views about the company and return to various stock-holders.

The information helps to gauge the audit work and accessing the risk of creating views about the company’s operations and financial position.

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