Your firm has been approached by a listed company, BONTO Limited, and asked if you will accept appointment as auditors for the year ending 31 December 2015(it is now late November 2015).
BONTOLtd's Finance Director provided you with the following statement of financial position and income statement information which included actual figures for years ending 31 December 2012 to 2014, with estimated figures for 2015.
BONTO Ltd produces gadgets. This was once a fairly profitable industry but both the size and profitability of the industry in Australia have declined significantly in recent years due to advanced technology and replacement products (which BONTO Ltd is unable to produce with its existing plant and equipment). Over recent years a number of its competitors and customers have closed down and existing tariffs, quotas and import duties on imported gadgetshave been scheduled to be abolished at the beginning of 2015.
BONTOLtd's factory closed in late November, pending the resolution of an industrial dispute (factory workers demanding a 15% wage rise and reduced hours). It is unlikely that work will resume prior to the Christmas shutdown and consequently the estimated figures for 2015 are not, in the opinion of the Finance Director, expected to change.
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|
BONTO LIMITED
INCOME STATEMENT
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|
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2012
000
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|
2013
000
|
|
2014
000
|
|
2015
000
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|
Revenue
COGS
Depreciation
Amortisation
Interest - Expense (net)
|
112,500
90,000
2,000
750
2,400
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|
115,875
98,494
2,000
750
2,000
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108,923
98,031
2,000
750
1,800
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92,584
86,103
2,000
750
1,500
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Other expenses
|
1,850
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1,850
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1,850
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1,850
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NPBT
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15,500
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10,781
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4,492
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|
381
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|
Tax expense
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6,045
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4,204
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1,752
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149
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NPAT
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9,455
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6,577
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2,740
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232
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BONTO LIMITED
BALANCE SHEET AS AT
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2012
000
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2013
000
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|
2014
000
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2015
000
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Current assets
Cash
Receivables
Inventories
Other
|
630
21,171
19,784
517
|
|
500
24,347
22,752
517
|
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450
27,999
26,164
517
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|
150
33,598
31,397
517
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|
Total Current Assets
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42,102
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48,116
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55,130
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65,662
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Non-Current assets
Investments
Property, plant & equipment
Intangibles
Other
|
87
25,921
15,349
1,115
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|
87
23,977
14,582
1,115
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|
87
22,179
13,852
1,115
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87
20,515
13,160
1,115
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Total Non Current Assets
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42,472
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39,761
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|
37,233
|
|
34,877
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|
Total assets
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84,574
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87,877
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|
92,363
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100,539
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|
|
|
|
|
|
|
|
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Current liabilities
Creditors
Borrowings
Provisions
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9,267
5,000
11,772
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10,657
0
12,361
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12,256
2,500
12,978
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14,707
4,000
13,627
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26,039
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23,018
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27,734
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32,334
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Non-current liabilities
Creditors
Borrowings
Provisions
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1,338
5,000
1,531
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1,137
5,000
1,479
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|
94
3,000
1,552
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1,360
5,000
1,630
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|
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7,869
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7,616
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|
4,646
|
|
7,990
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Total liabilities
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33,908
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30,631
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32,380
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40,324
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Net assets
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50,666
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57,243
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|
59,983
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|
60,215
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Shareholders, equity
Share capital
Reserves
Retained profits
|
26,202
11,187
13,277
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26,202
11,187
19,854
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26,202
11,187
22,594
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26,202
11,187
22,826
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Total shareholders, equity
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50,666
|
|
57,243
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59,983
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60,215
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Required
(a) The responsible partner for accepting new clients has requested you to prepare a preliminary analytical review on the information provided by BONTO Ltd's Finance Director. The partner suggests that as a minimum you should provide him with the following information.
(1) Horizontal analysis for 2015 and 2014. For asset's items use the net assets as base figure and for items in the income statement use the net profit before tax as the base figure. Use the findings to suggest to him the audit risk areas bearing in mind the assertions. (5 marks)
(2) Calculate 2 liquidity ratios, 2 activity ratios, 4 profitability ratios and 2 solvency ratios over the period 2011 to 2015.
Use Excel to answer both sections of part (a). Produce a working sheet showing the formulae that you have used to calculate the ratios on Excel. (8 marks + 2 marks for presentation)
(b) List four areas of high inherent risk based on your findings in (a) above and explain how they could affect the financial statements of 2015. (5 marks)
Maximum word limit 1000 words excluding graphs and tables