What is the 2-270 Analytical review workpaper in Agile?

What is the 2-270 Analytical review workpaper in Agile?

The 2-270 workpaper identifies relationships (for possible use in substantive analytical procedures), risks, inconsistencies as well as unusual transactions, events, amounts, ratios or trends that will likely require an audit response.

How is the document segregated?

The 2-270 workpaper is segregated under the following categories:

  1. Overall

  2. Relationships

  3. Liquidity ratios

  4. Activity ratios

  5. Profitability ratios

  6. Coverage ratios

  7. Assets

  8. Liabilities

  9. Equity

  10. Revenue

  11. Costs of Sales

  12. Expenses

Overall 

This section focuses mainly on the Financial Statements. The following components’ 3 financial years are presented and graphed as seen below.



Relationships

This section mainly focuses on components of the Income Statement which illustrates the relationships between, for example, Revenue and Cost of Sales. For example, in the data below we can see that Cost of Sales is 86% of total Revenue which is probably a little higher than a firm would want.


Liquidity Ratios

This section measures the firm’s ability to pay debt obligations and its margin of safety. For example, if we look at the Current ratio as an example. Anything over 100% indicates we have a higher percentage of Assets over Liabilities, which means we have the ability to pay our debt obligations. If you hover your mouse over the word Current ratio, the definition and calculation will be presented in a tool-tip.

Activity Ratios

This section meassures how efficiently a company is leveraging the assets on its balance sheet, to generate revenues and cash. For example, Inventory turnover ratio is one of the more important ratios as it helps in understanding the relationship between inventory / average stock and the cost of goods sold.A low inventory turnover can indicate poor liquidity, overstocking, or obsolescence.

Profitability Ratios

This section assesses a firm's ability to earn profits from its sales or operations, balance sheet assets, or shareholders' equity. Profitability ratios indicate how efficiently a company generates profit and value for shareholders. For example, Net Profit margin, measures how much of each dollar of sales was converted to profit.

Coverage Ratios

This section measures the firm’s ability to service its debt and meet its financial obligations. For example, if we consider Debt Ratio below, it is currently at 80.93%. Anything above 50% is considered Highly-leveraged and might make it difficult for the firm to borrow money. However, if we consider the trend from 2020, its creditworthiness is improving by 2022.

Other Financial Statement Ratios

The last remaining 6 graphs are focused on the Financial Statement areas. These stacked-bar Graphs are used to show multiple items for an individual category. For example, if we consider Inventories and Trade and other receivables makes up to 69% of Total Assets. We can see how the other areas of Assets, Liabilities, Equity, Revenue, Cost of Sales and Expenses compare to each other.


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