Case Study

Firstly, the profit before tax cannot be used in the planning materiality, because the number of profit before tax is loss before the 30/09/2011. Secondly, if I were auditor, I should decide to use what things to use planning materiality. Sales revenue is main drivers to sell products. Thirdly, revenue from operating activities generates cash flow from ordinary operating activities to affect auditing assessment (going concern). Fourthly, the turnover can be used by the auditor, because the number of turnover is positive. However, Auditor only uses one planning materiality approach method. One planning materiality amount is to be used for the financial report as a whole. Only one basis should be selected- a blended approach or average should not be used. The basis selected is the one determined to be the key driver of the business.The current ratio can show that the ability to prepay company’s debts at due date. There is significant ratio between 30/09/2011 and 2010. The current ratio of 30/09/2011 is over 2, which means the Cloud 9 cannot pay its debts at due date. The quick ratio is the same thing as the current ratio, and it also shows the ability to its repay its debts at due date. As we can see, the quick ratio of 30/09/2011 is over 1, which means that cloud 9 has no ability to repay its debts at the due date. The inventory turnover can show that when company bought more, it can get more inventories. But the inventory turnover has decreased from 2.51 to 2.1, compared with 2010, and which means that the Cloud 9 cannot buy more inventories to sell and it faces financial problems.