Auditing question
The 10-k filing, as well as the annual reports of the TL Company, were analyzed. This retail catalog works with its own independent distributors as well as franchisees across the globe. It mainly deals in the sale of premium quality apparel footwear for men, women, and sometimes children. Just like any other company, the TL Company has adopted various depreciation methods for its property and equipment. Mainly the company uses the straight-line depreciation method where it charges an equal amount for the depreciation of every asset in the various accounting periods. The amount charged remains the same until the asset in question gets reduced to nil. The second depreciation method used by the company is the diminishing balance method, where a fixed percentage of depreciation is the one charged after each accounting period. This continues until the net balance is realized, which is the value of an asset that remains after deducting the accumulated depreciation. The third method used in the calculation of depreciation is the double declining balances method where depreciation is charged on the reduced value of the asset, especially at the beginning of the year. The method is somewhat similar to the diminishing balance method but has a fixed rate of depreciation as the straight-line method.
Similarly, EarthWear uses these methods of depreciation to calculate the depreciation levels of its assets. The company prefers the straight-line method as it is generally accepted among the accounting principles. It is simple to calculate and is known to have fewer errors. Additionally, the company benefits as the results obtained remain consistent and rerate well with the statements to tax returns. However, the EarthWear avoids the use of a double-declining balance method since it leads to an over depreciated asset when its useful life comes to an end. It is important to note that using competitor data or substantive analytical procedures have a number of implications. They include making an overestimate of how well your competitor is meeting the needs of customers. The other is the possibility of quitting before you even get to market. Some of the substantive analytical procedures are meant to detect material misstatements in the figures as well as the presentation of the company’s financial statement. The TL company annual report shows that the annual revenues range from $1-$10 million. The report is useful in the estimation of financial strength as well as the credit risk of the company.