The analysis of the Top Fashion Warehouse was conducted by analysing the company and taking various accounts and factors into consideration for the company. The ratio analysis for the company was evaluated by incorporating the various liquidity ratio, activity ratio, profitability ratio and solvency ratio of the company. The inherent risk of the company are the several factor that affects the company were analysed for the company and taken into consideration. There were several account evaluated and identified for the company which were having a material impact on the financials of the company.
The financial analysis of the Top Fashion Warehouse Ltd was evaluated with the help of the ratio analysis for the company. The ratio analysis for the company was evaluated based on the several ratio, which helped us examine and analyse the performance of the company. The liquidity ratio, activity ratio, profitability ratio and the solvency ratio were some of the key ratio evaluated for the company (Bhattacharjee, Maletta & Moreno 2015).
The inherent risk factor that arise from the nature of material misstatement of financial statement of a company, or due to error, and omissions of the various factors and accounts. The Top Fashion Warehouse Ltd and the business operations of the company were evaluated in order to identify any inherent risk factor in the same
(BOTEZ, 2015). The two key inherent risk factor analysed for the company were the changes observed in the cash and cash equivalents and the inventory of the company. The cash and cash equivalent is the major and crucial current assets for the company helping the company in maintaining the operations of the company run smooth. The time taken by the company for producing the goods and completing the process of sales is quite longer, which takes around 46 weeks of time for completing the order and the same should be undertaken for the analysis of the Top Fashion Warehouse Ltd (Hines et al. 2015). The risks are specific with the Top Fashion Warehouse as the same will hamper the business operations of the company and the company might not able to meet the short term goals and objectives of the company. The increase in the inventory of the company might also signal that the company is not able to sell the products of the company and the risk of obsolesce inventory for the company may rise. The key inherent risk associated with the business operations of the company are the macroeconomic risk like the rise in the inflation rate and interest rate scenario for the company and the business factor risk such as counterparty default risk and the rising inventory of the company were some of the key factors addressed (Beck, Glendening & Hogan 2016).
The four key accounts that are at risk and the same explains significant risk and the same has been identified when material changes has been observed in these accounts and the difference between these accounts have been examined.
Liquidity Position: The liquidity ratio for the Top Fashion Warehouse Ltd has decreased from the trend period 2016 to 2018 where the cash balance for the company has consistently decreased and the inventory of the company rose in the trend period analyzed for the company (Fredriksson, Kiran & Niemi 2018). The liquidity position of the company has worsened in the trend period and the level of the cash and cash equivalents, which is a key part of the current assets of the company, has decreased consistently which may influence the operations of the company. The increase in inventory and account receivable, which are not readily in the liquid form of an asset is a key risk identified in this area for the operations of the company.
Debt and Asset Position: The debt to total assets ratio for the company rose in the year 2018 when the company took significant amount of debt in the company for the operations of the company. The debt of the company has significantly increased for the company reflecting the financial risk of the company has increased and the same would increase significant influence on the profitability of the company. The company should maintain an optimal balance between the debt and equity level so that the business operations of the company runs smooth for the company.
Inventory Turnover: The inventory turnover for the company in correspondence to the sales of the company has consistently increased for the company reflecting that the company might not be able to do the sales of the company. The inventory turnover has consistently fallen for the company in the trend period analyzed for the company reflecting that the company might suffers risk of obsolesce with high value of inventory into accounts for the company.
Inventory Level: The inventory level for the company has consistently increased for the company reflecting that the company might not able to sell the produced goods of the company and the risk of obsolesce may increase for the company. The rising inventory level for the company needs to be dealt with the company with specific strategies and ideas so that the management of the company can reduce the risk associated with the same.
The key accounts, which faces the most risks as identified in the above paragraph, are cash, plant and machinery, interest bearing liabilities and inventory. The cash balance of the business is shown to be on continuous fall which has a significant risk on the liquidity aspect of the business (Shin, Lee & Park, 2013). The fall in the cash balance is enormous and the liquidity of the business is at stake as with the falling cash balance, concern would be arise, how the management of the company would be financing new projects and meeting the day to day expenses of the business (Louwers et al., 2015). The auditor of the business needs to apply vouching practices on the cash balances of the business in order to ensure that the balances are showing true and fair view or whether some cash has been misappropriated by the management.
The property, plant and equipment account balances are shown to have increased during 2017 and again there is a significant increase in the balance of property, plant and equipment in 2018. There is a significant risk that the value of the net fixed asset has been misappropriated in order to make the balance sheet of the business look good and improve the financial position of the business (Abdullatif & Kawuq, 2015). The auditor of the business needs to verify the balances of property, plant and equipment in order to ensure that the same are showing true and fair view and in addition to this, the auditor also needs to physically verify the assets as there is a significant risk that the asset may not exist in real.
The interest-bearing liabilities show slight decrease which suggest that the management of the company has repaid a portion of the accumulated debts of the business but there can also be a situation where debts are shown lower in order to show low amount for liabilities and thereby show favorable financial position of the business (Stojanovi? & Andri?, 2016). The debt balance itself represent risks and therefore, the management of the company might be lowering the debts in order to show the investors that the debts are being lowered to reduce the overall risks which is associated with the debt balance of the business.
The inventory balance is also considered to be at risk as in most of the businesses misstatements and omissions are detected in the inventory balances (Mohammadi, Kalali & Najafzadeh, 2014). As per the estimates which is available for 2018, the balance of inventory has increased significantly in comparison to previous years which needs to be considered by the auditor (Abdallah, Mssadeh & Othman, 2015). The auditor needs to evaluate the internal control and thereby analyze the inventory management and recording process in order to ensure that no manipulation is done in this respect. The auditor can even conduct a physical check for the stocks in order to establish that the value which is shown in the financial statement are showing true and fair view or not.
Conclusion
The financial analysis of the company was evaluated with the help of ratio analysis and various other elements, which are evaluated for identifying the risk, associated with several accounts of Top Fashion Warehouse Limited. There were several account evaluated and identified for the company which were having a material affect the financials of the company. The key accounts, which faces the most risks as identified in the above paragraph, are cash, plant and machinery, interest bearing liabilities and inventory.
Reference
Abdallah, A. A. J., Mssadeh, A. A. D., & Othman, O. H. (2015). Measuring the Impact of Business Risks on the Quality of the Auditing Process. Review of Integrative Business and Economics Research, 4(2), 171.
Abdullatif, M., & Kawuq, S. (2015). The role of internal auditing in risk management: evidence from banks in Jordan. Journal of Economic and Administrative Sciences, 31(1), 30-50.
Beck, M. J., Glendening, M., & Hogan, C. E. (2016). Financial Statement Disaggregation, Auditor Effort and Financial Reporting Quality. working paper, Michigan State University.
Bhattacharjee, S., Maletta, M. J., & Moreno, K. K. (2015). The role of account subjectivity and risk of material misstatement on auditors’ internal audit reliance judgments. Accounting Horizons, 30(2), 225-238.
BOTEZ, D. (2015). Study Regarding the Need to Develop an Audit Risk Model. Audit financiar, 13(125).
Fredriksson, A., Kiran, A., & Niemi, L. (2018). Reputation Capital of Directorships and Audit Quality.
Hines, C. S., Masli, A., Mauldin, E. G., & Peters, G. F. (2015). Board risk committees and audit pricing. Auditing: A Journal of Practice & Theory, 34(4), 59-84.
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.
Mohammadi, J., Kalali, A., & Najafzadeh, A. (2014). Risk-Based Auditing. Asian Journal of Research in Business Economics and Management, 4(11), 366-372.
Shin, I. H., Lee, M. G., & Park, W. (2013). Implementation of the continuous auditing system in the ERP-based environment. Managerial Auditing Journal, 28(7), 592-627.
Stojanovi?, T., & Andri?, M. (2016). Internal Auditing and Risk Management in Corporations. Thematic Fields, 31.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download