Fashion Trends Limited is not following proper accounting and operating procedures. It has actively lineated accounting principle flaws that signifies great potential of existence of frauds and misrepresentation of accounts to gain tax and other legal benefits. FTL is also not offering significant amount for the auditing services. Both auditory and non-auditory work proposals should be rejected by the Williams and Wallace in order to avoid legal challenges it may face from the government in the form of imposition of fines due to approving misrepresented and fraud account transaction.
Fashion Trends Limited Audit Analysis
Because of the Fashion Designers industry's highly fragmented nature, no single company dominates a significant market share. Instead, there are many recognized names that operate as designers. These labels are generating extra revenue by signing contracts with large department stores and other clothing and accessory retail outlets.
Despite residual unemployment throughout much of the next five years, coupled with the threat posed by a saturated market, the Fashion Designers industry is poised for growth. As the value of once-elite brands diminish, designers will alter their business models, developing new product lines that are aimed at different price ranges. This strategy will ultimately help revenue grow at a forecast average annual rate of 2.8% to $1.2 billion over the five years to 2016 (IBIS World, 2011).
Operating in a fairly established sector and with few opportunities to expand, the Fashion Trends Limited continues to operate in the mature stage of its life cycle. Its value added is expected to grow at only 0.6% over the 10 years to 2016, compared to overall annualized GDP growth of 2.0% per year (IBIS World, 2011). Although this is typically a trait of a declining industry, the slow average growth of value added is attributed to the strong recessionary declines in profit and wages in 2008 and 2009.
The main objective of this audit analysis is to review Fashion Trends Limited for suitability as an audit client. It also critically evaluates FTL's suitability by considering the risks identified and the ethical issues, and reaches a conclusion as to whether the audit (and any non-audit work) should be accepted or not.
Fashion Trends Limited Overview
Fashion Trends Limited (FTL) is a large privately owned company that manufactures a range of organic clothing in South Wales. The company has always prided itself on manufacturing good quality and ethically sound garments and selling them to a number of well-known department stores in the UK.
Analytical review of the FTL is discussed in the following part with respect to determining whether auditing proposal of the company along with non-auditing work should be accepted or not.
Current ratio of the Fashion Trends Limited is significantly decreased in past two years which shows decreasing capability of the company to manage its short-term financing need in future. Current ratio (CA=1.31) is comparatively lower to industry ratio (1.69). Current ratio has declined from 1.34 to 1.31 which shows that cash availability has decreased significantly to pay the ...