Data Analytics and Excel
Reference the Excel file containing financial information from footnote disclosures and substantive analytical procedures using data analytics from your instructor.
PharmaCorp will be used as the main analytical procedure tasks you will want to focus on for this assignment. The other companies, Novartell and AstraZoro, will be used as industry comparisons.
The opportunity exists in this case to perform planning and substantive analytical procedures for accounts in the acquisition and payment cycle. You may assume that the 2015 financial information is unaudited, but the information from 2014 has been audited. Consider the following trends and characteristics of the pharmaceutical industry and for PharmaCorp in particular as you work on this case:
– Following many years of dominant financial performance by companies in the United States, Europe, and Canada, increased competition is arising from organizations in emerging economies such as Brazil, India, and China.
– Significant uncertainty exists in the industry due to regulations covering healthcare and government reimbursements related to certain procedures and prescribed pharmaceuticals.
– Policymakers in the industry and governments increasingly:
– Mandate necessary prescripts for patients
– Focus on prevention instead of treatment regimes, thereby leading to changes in demand for some products
– Anticipated growth in the industry is expected to be 5% to 7% in 2016 compared with 4% to 5% in the prior year as stated by leading industry analysts.
– Pharmacorp started and executed a significant cost reduction initiative aimed at improving efficiency, reducing research and development costs, and eliminating corporate overhead in 2014.
– PharmaCorp’s credit policies have remained the same over the past several years. Their credit policies are considered stringent in their industry, and they have been criticized on occasion for these policies in relation to their competitors.
– Two of the company’s most popular pharmaceuticals, Sistosis and Vigarvox, are no longer patented as of the last quarter of 2015 and are now facing competition from generic alternatives.
Information specific to the Acquisition and Payment Cycle
– Raw materials inventory required in the businesses are purchased from numerous suppliers. No serious shortages or delays of raw materials inventory were encountered in 2015, and none are expected in 2016. PharmaCorp has successfully secured the raw materials inventory necessary to meet its requirements where there have been short-term imbalances between supply and demand, but generally at higher prices than those historically paid.
– A risk that companies in this industry face with respect to the acquisition and payment cycle is that there is a possibility of failing to maintain the integrity of supply chains, possibly resulting in intentional and criminal acts such as product diversion, product theft, and counterfeit raw materials inventory.
– In response to pricing pressure, several major suppliers changed their policy with respect to discounts for early payment of amounts due on credit sales. In response, PharmaCorp changed its policy of paying within two weeks to paying within four weeks since it is no longer monetarily beneficial to do so from a cash management perspective.
Required:
Part II: Substantive Analytical Procedures
Management has explained the decline in cost of goods sold as involving:
– Lower purchase accounting charges, primarily reflecting fair value adjustments relating to acquired inventory that was subsequently sold
– Lower costs related to new cost reduction and productivity initiatives, as well as savings generated from ongoing productivity initiatives to streamline the supply chain network
– Reduced manufacturing volumes related to products that lost exclusivity in various markets
– The impact of favorable foreign exchange rates of 3%.
Submit a Final Report that includes a Management Letter, a discussion on Substantive Analytical Procedures, and a summary of the audit. Use the information below to complete the report:
1. Write a one-page Management Letter (see sample letter attached to additional material file) to the Management Team summarizing your findings. This letter should be submitted as a Word Document.
2. Prepare a Word document with the following below:
– Explain the different types of ratio analysis that could be conducted in substantive analytical procedures to test the validity of management’s explanations.
– How would these substantive analytics be different from the planning analytics?
– Discuss the trends and relationships that are relevant, and what are the implications in relation to further substantive testing?
– Report the audit implications of your findings, indicating any additional procedures that should be performed.
Your word Document should be 3-4-pages in length, not counting the title page and reference page, which includes the memo. The Word documents should follow the APA format. Use four (4) credible academic sources.