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According to ISA 520, analytical procedure means “the evaluation of financial information through the analysis of...


According to ISA 520, analytical procedure means “the evaluation of financial information through the analysis of plausible relationships among both financial and non-financial data. It includes the investigation of identified fluctuations, or relationships that are inconsistent with other relevant information, or that differ from expected values by significant amount”. Corona virus or the COVID19 pandemic has affected most, if not all, of the business industries not only in Oman but all over the world. This is due to the imposed “lockdown” of areas affected by the pandemic to not spread the disease and worsen the situation. One of the industries that are considered affected by this pandemic is the Pharmaceutical Industry. Based on the news, pharmaceutical companies are now worried of drugs shortages as the pandemic affects many countries. Also, because employees are getting sick or afraid to contract the virus, only few are able to report to work. Assume that you are a member of an audit team assigned to analyze the effects of the corona virus (COVID19) pandemic on businesses. Answer the following questions related to this business sector:

Pharmaceutical Industry (example Muscat Pharmacy)

*Required: Answer the following questions on analytical procedures:


1. In your opinion, will this business sector be favorably or unfavorably affected by the COVID19 pandemic? Explain your answer focusing on the financial impact.


2. How could the auditor analyze the financial impact to the business sector given? Give at least two suitable examples of analysis that you can use to analyze the impact of the pandemic to a specific business belonging to the pharmaceutical industry, like the Muscat Pharmacy.

Solutions

Expert Solution

Answer 1

Covid-19 has created challenges to whole mankind, everyone is scared and tries to keep himself safe. When we talk about business impact, many businesses have lost their lives, they are becoming bankrupt day by day due to the nature of industry like tour and travel, hotel, etc.

However, when we talk about Pharma business, it is the least impacted business with higher revenue during this period, as panic buying making these companies more cash-rich rather than cash strapped, however, there is a production issue but most of the government all over the world allowed them to operate at full capacity with precautionary measures. The pharmaceutical business is doing very well as all inventory of medicine is moving so fast their sales are growing day by day and it is estimated that it will grow with a steep rise at least 2-3 years.

For example Company name Sun Pharma, Listed in Indian Stock market, as India is the leading manufacturer of medicines al over the world, Sales of this company is going hight as every country is asking for more supply and trusted supplier are limited so they are getting a huge contract at good prices. Their stock price is all-time high. This shows that Pharmaceutical business has favorable impact on this medical disaster.

Answer 2:

The auditor conclusion is based on the documentary evidence provided to them or gathered by them. Auditor will check the operating capacity of the company, whether they have locked their plant or they were producing the medicine desire, and to whom they were selling at what cost. If the plant is open during this pandemic definitely company doing good, However analysis cant be a single base auditor will check the following things to check the impact on Pharmaceutical business. Auditor will judge the Pharmaceutical company on the following pints -

1- whether medicine made by the company used to cure COIVD-19 in any manner?

2- Companies expert area?

3- Company capacity for treating patients.

4- Export order inline,

5-Loss due to lockdown etc

These are the indicative list to judge their performance by the auditor.


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