Trading places
A KPMG case study

Page 1: Introduction

In order to make judgements about business activities, individuals require information. Accounting acts as an information system by processing business data so that interested parties can be provided with the means to understand how an organisation is performing. This case study is intended to provide an understanding of the accounting process and how accounting information meets the needs and...
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Page 2: What is an audit?

Audit originates from the time of the agricultural economy. Landowners made their money by charging their tenants a proportion of the income they made from the land. In order to find out how much the landowner was due, he employed people to visit their properties and report back how many crops were produced. The landlord then decided what his share was. The term auditor originates from the Latin...
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Page 3: Content of accounts

The best way to look at accounts is as a sort of shorthand for what is really going on in a company. The bare figures don’t conjure up the actual day-to- day activities of the organisation, but once you are reasonably familiar with the basic figure work you can begin to look at what lies behind it. The objective of financial accounting is to provide information about a business. This...
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Page 4: Analysing accounts

Financial statements are prepared primarily for the members of the company, but they will inevitably be used by other interested parties. For example: Present and potential investors (and their advisers) will want to know whether the business is a good investment. Lenders and suppliers will want to know if the business is a good credit risk. The Government will want to make sure that the...
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Page 5: Ratios

Ratios divide into three main areas: profitability liquidity and working capital gearing. Profitability ratios Profitability ratios measure rate of return earned on capital employed, and analyse this into profit margins and use of assets. These ratios are frequently used as the basis for assessing management’s effectiveness in utilising the resources under their control. Return on capital...
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Page 6: Conclusion

Ratios are a tool to assist analysis. They focus attention on trends and weaknesses and facilitate comparison over time and between companies.Ratios may change over time or differ between companies because of the nature of the business or management actions in running the business. But ratios alone don’t tell us enough about a company. It is important to gain a good understanding of the...
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