Sunteți pe pagina 1din 7

Circle L Project

Kasey Kanada - 49 Tim Molloy - 73 Sam Rosenbaum 82 Dr. Pany ACC450 9:00 Tues/Thurs 1/28/2013

After performing technical analysis on the entire chain of Circle L stores (24), we have selected five stores that should be assessed in greater detail. In order to identify stores that have overstated sales, we used several techniques in order to efficiently select stores with problems. Our results are summarized in Exhibit 1 at the end of the report. 1) Judgmental Selection Our first step was to perform judgmental selection before we went ahead and implemented more specific and refined analytical procedures. This proved to be a critical step in the assessment of risk because it familiarized our auditors with the stores and the financial data associated with each individual performance. We were provided information from the companys controller, Wilson Wilsen, that we closely looked at during the selection of stores. We have randomly selected a store that was close to a freeway entrance/exit being store 2. Store 16 is in question due to the conversation with the controller regarding the need for a better attitude and an increase in sales. Our team would like to look further at whether or not this conversation is actually driving up sales or if there is something else happening at the specific store. Store 18 has the highest total sales from all the various stores thoughout the year. Even though these sales are in line with the stores sales from previous years, our audit staff would still like to take a closer look at this store to identify why Store 18 is outperforming its competitors. Store 19 ran into a situation that was caused by an ex-manager that seemed to cause sales to decrease. Though the ex-manager has been replaces with a new manager, things are back to normal, but sales have continued to suffer. Our Audit staff would like to look at this particular store to see what is driving the low sales numbers. Store 24 has sales that are very large in comparison to other new stores. It seems plausible to find out why this store is outperforming other new stores. Our discussion with the controller has made our staff realize that Store 24 has been accused of cheating by store 18 in the sales competition. Stores: 2, 16, 18, 19, 24 2) Trend Analysis
Store # 20 11 16 14 23 %CHG 22.75% 18.21% 14.76% 10.56% 9.64%

3) Reasonableness Test
Store # 1 24 18 10 6 Over $470 AMT 155 152 151 150 105

4) Regression a. R1 (20X3 Sales) i.


Observation 24 16 18 15 4 Predicted 20X4 Sales 760,042.85 1,970,878.31 2,250,482.43 2,077,649.04 760,042.85 Standard Error 83421.81761 0.053374784 Residuals 483,629.15 263,843.69 234,020.57 216,197.96 191,741.15

Coefficients Intercept 20X3 Sales 760042.8526 0.621801257

t Stat 9.110840237 11.64971949

P-value 6.38846E09 7.00721E11

ii)Predicted 20X4 sales-760042.85+(.6218*1,069,652)=1,425,153.81 Store 12 sales Actual=1,139,475 iii)Store Residual-1,139,475-1425,153.81=-285,678.81 Actual Residual=-285,678.81 b. R2 (20X3 Sales, Square Feet, Close to Freeway) i.
Observation 18 16 15 24 6 Predicted 20X4 Sales 2,229,687.27 2,016,837.19 2,106,319.44 1,095,082.45 2,163,867.56 Standard Error 149684.8721 0.044911569 49.67422616 69389.53313 Residuals 254,815.73 217,884.81 187,527.56 148,589.55 136,803.44

Intercept 20X3 Sales Square Feet Close to Freeway

Coefficients 6320.921438 0.473349416 272.190382 8202.473869

t Stat 0.042228191 10.53958769 5.479509256 0.118209094

P-value 0.96673553 1.29806E-09 2.30637E-05 0.907081158

ii. The independent measure that is the best predictor is 20X3 Sales. When looking at the table located above, one can see that the 20X3 Sales has the high t Stat indicating that this measure has a close statistical relationship with the dependent variable. Also, the P-Value is .000000001298. This is significantly lower than .05 which is the value that indicates what a significant contributor is. The square feet comes close to being the best measure because it also has has a high t stat and a low P Value, but the 20X3 is better suited to be the best predictor. iii. The worst independent measure is closeness to freeway. There are only a few stores that are close to the freeway. When looking at the t Stat and the P-Value for this measure, you can see that the t State is very close to zero, indicating that there is little to no relationship with the dependent variable. In addition to this, the P-Value for Close to Freeway is near to 1. This is also another indicator that this measure is not a statistically significant predictor of sales in our model. After comparing the residual values of each store with their closeness to the freeway, there was no correlation to anything affecting the 20X4 Values. c. R3 (20X3 Sales, Square Feet, 20X4 Inventory)
Observation 18 16 15 24 14 Predicted 20X4 Sales 2,257,428.95 2,054,247.97 2,148,935.84 1,103,951.83 1,878,141.60 Standard Error 216836.926 0.047600366 46.23718639 4.802382531 Residuals 227,074.05 180,474.03 144,911.16 139,720.17 106,635.40

Coefficients Intercept 20X3 Sales Square Feet 20X4 Inventory -261415.1556 0.436496157 263.6482394 7.773237428

t Stat 1.205584125 9.170016728 5.702082242 1.618621045

P-value 0.242048133 1.33042E-08 1.40029E-05 0.121191519

R4 (Average Employees, Square Feet, 20X4 Inventory)


Observation 18 14 12 21 11 Predicted 20X4 Sales 2,095,041.07 1,654,987.65 836,707.72 1,619,817.86 923,124.73 Residuals 389,461.93 329,789.35 302,767.28 254,411.14 235,879.27

Coefficients Intercept Average Employees Square Feet 20X4 Inventory -1364159.364 1540.846986 465.5724703 29.35108052

Standard Error 636226.6036 42031.26718 98.4246565 9.74150697

t Stat 2.144140714 0.036659542 4.730242267 3.01299179

P-value 0.044492537 0.97111991 0.000128115 0.006871866

R5 (20X3 Sales, Average Employees, Square Feet, 20X4 Inventory, Freeway, Sells Gas)
Observation 18 16 24 15 6 Predicted 20X4 Sales 2,283,051.83 2,054,404.00 1,123,910.89 2,180,058.23 2,207,035.63 Standard Error 329677.8792 0.048829812 22549.02867 56.97781471 5.181591629 77129.96707 77116.38633 Residuals 201,451.17 180,318.00 119,761.11 113,788.77 93,635.37

Coefficients Intercept 20X3 Sales Average Employees Square Feet 20X4 Inventory Close to Freeway Sells Gas -364749.3933 0.432989276 16420.0009 232.9558348 6.793256795 22562.69612 114146.1332

t Stat 1.106381157 8.867314063 0.728191052 4.088535791 1.311036701 0.292528274 1.480180006

P-value 0.283972716 8.74596E-08 0.476408201 0.000765468 0.207279423 0.773423017 0.15711948

d. The five stores that we selected were i. Store 18-Store 18 came up as the top residual for all the tests that were administered. This is a clear indication that this store needs further review. It is highly likely that this store is over stating revenue. ii. Store 16-Not far behind store 18, Store 16 was in the top 5 positive residuals for the regression models. The relationship between the independent variables and 20X4 demonstrates a possibility that the store may be overstating stales. iii. Store 15- Store 15 came up on our top 5 positive residuals for 4 out of the 5 tests. As a result, we are including this store in out top 5 overall iv. Store 24- Like the previous three stores, Store 24 ranked in the top 5 for the stores with the highest residual for 4 out of the 5 tests. v. Store 6- The reason we selected Store 6 over other stores that are marked twice in our regression list is because although store 6 did not show up in the top 5 residuals for most of the tests, it was constantly near the top. As such, it feel into the interesting category more often than the other stores that appear in the top 5 the same number of times.

5) Overall Five Stores: It is important the we as a firm perform a variety of procedures and analysis in order to identify which stores need to be looked at further. Due to time and financial constraints, an analysis of all the existing Circle L stores is no possible, but using more advanced analytical techniques, it has enabled our firm to select the stores that are most likely to contain overstated sales. Our firm has relied on judgmental analysis prior to this audit and while audit staff should focus on this technique before starting other procedures, it is important to perform analytical procedures to determine exactly what drives sales. Our audit staff used four procedures during our assessment: Judgmental, Trend, Reasonableness, and Regression. In order to become more familiarized with the financial data that the controller provided, the first three tests were used. It was beneficial for our staff to see big changes and identify stores that had wide variances compared to the prior year. However, these techniques did not allow our firm to discover what variables were driving the 20X4 Sales. To discover the drivers, we implemented a statistical technique called regression analysis. This approach allowed us to conclude the independent variables that are drivers of 20X4 Sales are 20X3 Sales, Store Square Footage, and whether or not the store is new. We have determined that the following stores have the highest risk of material misstatement of sales based on the data gathered from our analytical procedures: Store 6 Store 15 Store 16 Store 18 Store 24 If you have any further questions about the analysis of our staff, please feel free to contact us. Kasey Kanada Tim Molloy Sam Rosenbaum

Summary Table for Circle L


Store Step 1 Judg. Step 2 Trend Step 3 Reas. Step 4 R4 R5 Overall 5 Stores

R1

R2

R3

ROverall

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

X X X X X X X X X

X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X

Note: Each column should have an X by 5 stores.

S-ar putea să vă placă și