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Cloud Nine, Case Study Example

Pages: 2

Words: 675

Case Study

The directions for part 1(a) require the auditor to calculate planning materiality and provide justification for such calculations. I think that you should definitely include some type of analysis that explain and justify your planning. While it is not necessary to spend extensive time justifying revenue earnings or income tax, “Other expenses from ordinary activity” needs elaboration. A strong analysis would provide an itemized list of ordinary activities along with associated expenses. What, for instance, caused ordinary expenses to fluctuate instead of remaining constant, and what does the employee marginal have to do with such expenses? You should also discuss tax liabilities and how they affect income taxes along with the overall budget.

When discussing revenue, consider comparing 2009 with the year 2010. For example, the case study speaks of the company’s ambition to increase revenue by three percent during the 2010 fiscal year. As the study explains, “one of the critical success factors for the company to achieve this 3 percent increase is to grow its share of the Australian footwear market” (“Financial Information,” pg. 2). The company has not, however, seen such increase due to a new store opening. Instead of progressing by gaining more popularity in the Australian footwear market, the company has taken a step backwards and anticipates a loss in revenue. A good analysis of this phenomena would discuss potential reasoning behind Cloud Nine opening a new store. While every business has its interpretation of what a new facility will do, it appears that Cloud Nine anticipated the grand opening of a new store as its way to gain an increase in revenue. It is not necessary to go into extensive detail about this idea in your justification section, but such analysis would definitely strengthen your company analysis.

In many respects, your justification in 1(a) will lead into your complete analysis of the company. Cloud Nine, for instance, took a major risk by opening a new store the same year that it hoped to increase profit. Since new facilities lead to increased expenses, one could question the company’s business practices in the field of finance. Although Cloud Nine appears to be in a good financial position by not experiencing great loss during the fiscal year, your analysis can consider the company’s future if it were to continue with its current practices.

Aside from evaluating financial stability, you can also use the new store grand opening to explain fluctuation in “Other expenses from ordinary activity.” Expenses in this area increased by 9631655 the year that the facility made its debut. Such large increase deserves an explanation and speculation as to what may have contributed to more money being invested. While not necessarily responsible for the entire increase, a new store requires a lot of time and money. Even if the facility did not require complete renovation or building from the ground up, new lease agreements and preparation requires additional finances. Hiring new employees to staff the store are also additions that require money. As a positive, it would be beneficial for you to highlight Cloud Nine’s stability in income tax. Expenses in this area have remained constant during both fiscal years and much of this can be attributed to good planning in tax liabilities.

Although you can complete parts (a) and (b) in any order, it would be best to conduct the analysis first and then formulate a table that visualizes your findings. Depending on the depth of your analysis, a lot of explanation may not be necessary in your table. In total, I think that you should write no more than ten wards. At minimum, three or four should convey the general idea though it is best to explain every point so that the reader is not forced to make connections. I think that you will spend the majority of your time analyzing the “Other expenses from ordinary activity” since much of this information is located in the case study. Although revenue losses present ratio fluctuation, other expenses contribute to such decrease in gains. Income tax needs little explanation and should receive minimal attention.

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