The Solar Electro Division Is Based On A Fairy New Market

The Solar-Electro Division is based on a fairy new market. Although management believes this division will prove to be very successful in future years, this is dependent on global climate changes continuing which is something outside of their control. In addition, since Pinnacle is considering selling their other division, Machine-Tech this could potentially lead to a greater reliance on the performance of the Solar-Electro Division as well as their long standing Division, Smith. In addition PGC should also consider the controls management of Pinnacle have in place that may help mitigate business risk. The primary source for identifying client business risk comes from the company’s management. Management should be evaluating their own†¦show more content†¦In addition, certain analytical procedures can be a useful technique to determine whether Pinnacle has financial problems. When applying analytical procedures to Pinnacle, PGC will develop an expectation of what a ratio or account balance should be. As stated in AU 329, paragraph 05, analytical procedures involve the comparison of the recorded amounts or ratios to the expected amounts the auditor developed. PGC will develop these expectations by considering prior period, anticipated results, such as the client-prepared budgets and industry trends. It will then compare Pinnacle’s financial recorded amount and ratio that applies to the industry which it operate by performing a benchmark. The auditors will need to come up with a baseline that considers cost and benefits implication from the rules and time constraints. By doing so, it will give PGC a more efficient and effective way to conduct an analytical procedure. To perform an analytical procedures on Pinnacle financial statement, PGC should conduct a trend and ratio analysis (see figure 1 in the Appendix). According to our calculation, Pinnacle’s liquidity has been decreasing for the past three years. The cash, quick, and current ratio depicts Pinnacle’s ability to pay their short-term debt, which has been decreasing each