Financial Report Analysis (NUR RAHMAH)

ENGLISH FOR ACCOUNTING

FINAL TEST

BY:

NUR RAHMAH

361 10 042

3B-D3

ACCOUNTING DEPARTMENT

POLITEKNIK NEGERI UJUNG PANDANG

MAKASSAR

2013

A.   Financial Ratio Analysis

Financial ratio analysis involves calculating certain standardized relationship between figures appearing in the financial statements and then using those relationships called ratios to analyze the business' financial position and financial performance.

Due to varying size of businesses different comparison of two businesses is not possible. Certain techniques have to be applied in simplifying the financial statements and making them comparable. These include financial ratio analysis and common-size financial statements.

Ratios are divided into different categories such as liquidity ratios, profitability ratios, etc.

B.   Categories of Financial Ratios

1)      Liquidity Ratios

Liquidity is the ability of a business to pay its current liabilities using its current assets. Information about liquidity of a company is relevant to its creditors, employees, banks, etc. current ratio, quick ratio, cash ratio and cash conversion cycle are key measures of liquidity.

2)      Solvency Ratios

Solvency is a measure of the long-term financial viability of a business which means its ability to pay off its long-term obligations such as bank loans, bonds payable, etc.. Information about solvency is critical for banks, employees, owners, bond holders, institutional investors, government, etc.. Key solvency ratios are debt to equity ratio, debt to capital ratio, debt to assets ratio, times interest earned ratio, fixed charge coverage ratio, etc.

3)      Profitability Ratios

Profitability is the ability of a business to earn profit for its owners. While liquidity ratios and solvency ratios are relationships that explain the financial position of a business profitability ratios are relationships that explain the financial performance of a business. Key profitability ratios include net profit margin, gross profit margin, operating profit margin, return on assets, return on capital, return on equity, etc.

4)      Activity ratios

Activity ratios explain the level of efficiency of a business. Key activity ratios include inventory turnover, days sales in inventory, accounts receivable turnover, days sales in receivables, etc.

Performance ratios include cash flows to revenue ratio, cash flows per share ratio, cash return on assets, etc. and they aim at determining the quality of earnings.

5)      Coverage Ratios

Coverage ratios are supplementary to solvency and liquidity ratios and measure the risk inherent in lending to the business in long-term. They include debt coverage ratio, interest coverage ratio (also known as times interest earned), reinvestment ratio, etc.

Quick ratio or Acid Test ratio is the ratio of the sum of cash and cash equivalents, marketable securities and accounts receivable to the current liabilities of a business. It measures the ability of a company to pay its debts by using its cash and near cash current assets (i.e. accounts receivable and marketable securities).

C.   Formula

Quick ratio is calculated using the following formula:

Quick Ratio
=	Cash + Marketable Securities + Receivables
	Current Liabilities

Marketable securities are those securities which can be coverted into cash quickly. Examples of marketable securities are treasury bills, saving bills, shares of stock-exchange, etc. Receivables refer to accounts receivable. Alternatively, quick ratio can also be calculated using the following formula:

Quick Ratio
=	Current Assets − Inventory − Prepayments
	Current Liabilities

D.   Example

Example 1: A company has following assets and liabilities at the year ended December 31, 2009:

Cash	$34,390
Marketable Securities	12,000
Accounts Receivable	56,200
Prepaid Insurance	9,000
Total Current Assets	111,590
Total Current Liabilities	73,780

Calculate quick ratio (acid test ratio).

Solution
Quick ratio = ( 34,390 + 12,000 + 56,200 ) / 73,780 = 102,590 / 73,780 = 1.39
   OR
Quick ratio = ( 111,590 − 9,000 ) / 73,780 = 102,590 / 73,780 = 1.39

Example 2: Calculate quick ratio from the following information:

Cash	$21,720
Treasury Bills	18,500
Accounts Receivable	15,930
Prepaid Rent	6,500
Inventory	17,240
Total Current Assets	79,890
Total Current Liabilities	52,960

Solution
In this example, treasury bills are marketable securities thus we will calculate quick ratio as follows:
Quick ratio = ( 79,890 − 6,500 − 17,240 ) / 52,960 = 56,150 / 52,960 = 1.06
   OR
Quick ratio = ( 21,720 + 18,500 + 15,930 ) / 52,960 = 56,150 / 52,960 = 1.06

E.   Analysis

Quick ratio measures the liquidity of a business by matching its cash and near cash current assets with its total liabilities. It helps us to determine whether a business would be able to pay off all its debts by using its most liquid assets (i.e. cash, marketable securities and accounts receivable).

A quick ratio of 1.00 means that the most liquid assets of a business are equal to its total debts and the business will just manage to repay all its debts by using its cash, marketable securities and accounts receivable. A quick ratio of more than one indicates that the most liquid assets of a business exceed its total debts. On the opposite side, a quick ratio of less than one indicates that a business would not be able to repay all its debts by using its most liquid assets.

Thus we conclude that, generally, a higher quick ratio is preferable because it means greater liquidity. However a quick ratio which is quite high, say 4.00, is not favorable to a business as whole because this means that the business has idle current assets which could have been used to create additional projects thus increasing profits. In other words, very high value of quick ratio may indicate inefficiency.

AUDIT REPORT (NURHANA, HILDA ADELIA, NUR RAHMAH, SUKADRY, MUHAMMAD ILYAS)

AUDIT REPORT

BY:

NURHANA

HILDA ADELIA

NUR RAHMAH

SUKADRI

MUHAMMAD ILYAS

ACCOUNTING DEPARTMENT

POLITEKNIK NEGERI UJUNG PANDANG

MAKASSAR

2013

A.   About PT Vale Indonesia Tbk

PT Vale Indonesia Tbk, formely PT International Nickel Indonesia Tbk, was established on July 25, 1968 by deed No. 49 dated July 25, 1968 drawn up before Eliza Pondaag, a public notary in Jakarta.

The company plant is located in Sorowako, South Sulawesi and head office is located in Jakarta.

The company operations are conducted pursuant to a Contract of Work entered into with the Government of the Republic of Indonesia. The CoW grants the company the right to develop and operate a project for nickel and certain other minerals in defined areas within the island of Sulawesi.

B.   Auditing

       Arens dan Loebeccke (1997:5)

“Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing Should be done by a competence independent person.”

C.   Types of Audit

1.      Management Audit;

2.      Compliance Audit;

3.      Internal Audit;

4.      Computer Audit.

D.   Types of Audit Opinions

1.      Unqualified opinion

The unqualified opinion has no reservations concerning the financial statements. This is also known as a clean opinion meaning that the financial statements appear to be presented fairly.

2.      Qualified opinion

This means that the auditor has taken exception to certain current-period accounting applications or is unable to establish the potential outcome of a material uncertainty.

3.      Disclaimer opinion

      This is a special type of audit report that should be issued when the auditor permits his or her name to be associated with financial statements that were not examined in accordance with generally accepted auditing standards.

4.      Adverse opinion

This is a type of audit opinion which states that the financial statements do not fairly present the financial position, results of operations, and changes in financial position, in conformity with generally accepted accounting principles.

5.      Qualified opinion with explanatory language.

E.   Internal Audit

Institute of Internal Auditors (IIA) Standard effective January 2002. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

The audit process is generally a ten-step procedure as outlined below.

1.      Notification

First, you will receive a letter to inform you of an upcoming audit. The auditor will send you a preliminary checklist. This is a list of documents (e.g. organization charts, financial statements) that will help the auditor learn about your unit before planning the audit.

2.      Planning

After reviewing the information, the auditor will plan the review, conduct a risk workshop primarily to identify key risks and raise risk awareness, draft an audit plan, and schedule an opening meeting.

3.      Opening Meeting

The opening meeting should include senior management and any administrative staff that may be involved in the audit. During this meeting, the scope of the audit will be discussed. You should feel free to ask the auditors to review areas that you are concerned about. The time frame of the audit will be determined, and you should discuss any potential timing issues (e.g. vacations, deadlines) that could impact the audit. It doesn't take as much of your time as you might expect!

4.      Fieldwork

After the opening meeting, the auditor will finalize the audit plan and begin fieldwork. Fieldwork typically consists of talking with staff, reviewing procedure manuals, learning about your business processes, testing for compliance with applicable university policies and procedures and laws and regulations, and assessing the adequacy of internal controls. You should make your staff aware that the auditor will be scheduling meetings with them.

5.      Communication

Throughout the process, the auditor will keep you informed, and you will have an opportunity to discuss issues noted and the possible solutions.

6.      Report Drafting

After the fieldwork is completed, the auditor will draft a report. The report consists of several sections and includes: the distribution list, the follow-up date, a general overview of your unit, the scope of the audit, any major audit concerns, the overall conclusion, and detailed commentary describing the findings and recommended solutions. You should read the draft report carefully to make sure there are no errors. If you find a mistake, inform the auditor right away so that it can be corrected before the final report is issued.

7.      Management Response

Once the report is finalized, we will request your management responses. The response consists of 3 components: whether you agree or disagree with the problem, your action plan to correct the problem, and the expected completion date.

8.      Closing Meeting

A closing meeting will be held so that everyone can discuss the audit report and review your management responses. This is an opportunity to discuss how the audit went and any remaining issues.

9.      Report Distribution

The report is then distributed to you, your manager(s), senior university administrators, internal audit, and the university's external auditors. We also distribute an audit survey to the audited unit to solicit feedback about the audit. Feedback is important to us, since it can help us improve the audit process.

10.  Follow-Up

Follow-up reviews are performed on an issue-by-issue basis and typically occur shortly after the expected completion date, so that agreed-upon corrective actions can be implemented. The purpose of the follow-up is to verify that you have implemented the agreed-upon corrective actions. The auditor will interview staff, perform tests, or review new procedures to perform the verification. You will then receive a letter from the auditor indicating whether you have satisfactorily corrected all problems or whether further actions are necessary. If further corrective action is required, you will need to write a management response. Otherwise, the issue will be reported as resolved.

 

 

Jakarta, 22 March 2012

Independent Auditor’s Report

To the Shareholders of

PT Vale Indonesia Tbk

 

Kantor Akuntan Publik

Tanudiredja, Wibisana dan Rekan