Page 332 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

(CNO—INTG.080) SPECIAL ASPECTS IN CONNECTION WITH BUSINESS INVESTIGATIONS
Turnover
To assess the future turnover potential, consider:
i) Trend: Examine past sales patterns for consistency or fluctuations.
ii) Marketability: Assess the potential for expanding sales into new markets.
iii) Political and economic considerations: Evaluate government policies' impact on market expansion and
the influence of economic trends on home market sales.
iv) Competition: Consider the effects of new competitors, the introduction of competitive products at lower
prices, the demand for such products, and the company’s market share stability.
Working Capital Assessment
In making assessment of the working capital requirements in the future, the following matters should
be taken into account:
Ratio of Inventory to Turnover: (i) Has the ratio of inventory to turnover been increasing and if so, is it a
continuing or only a temporary trend?
Trade Payables Payment Status: (ii) Are the trade payables being paid promptly or is there a backlog which
will have to be dealt with?
Effect of Changes on Inventory and Payables: (iii) What will be the effect on inventory, trade receivables,
and trade payables, if the turnover is increased or if new products are introduced?
Future Maintainable Profits
Estimating Future Maintainable Profits
- Fluctuations in Profits:
- Examine profits during the years, adjusting for extraneous factors.
- Determine if factors causing fluctuations were temporary or likely to recur.
- Statement & Adjustments:
- Prepare a statement showing profits after depreciation for each year.
- Adjust for factors causing any extraordinary profit increase.
- Profit Percentage Evaluation:
- If the percentage of profits before taxation to capital has been stable or increasing, the business might
continue its past profit rate.
- If the percentage is falling with no evidence of ceasing factors, caution is advised.
- Investment Advisability: Reconsider further capital investment if not commercially advisable.

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