The table provided to you by your instructor contains calculations of several key ratios for a fictitious company,

The table provided to you by your instructor contains calculations of several key ratios for a fictitious company,

Texanna Pharmaceutical Company, a maker of proprietary and prescription drugs.

Texanna is a small- to medium-sized publicly held pharmaceutical company. Approximately 80% of its sales has been in prescription drugs; the remaining 20% is in medical supplies over the counter.

Auditor’s calculations are used to ascertain potential risks in anticipation of an audit. Some of this data may indicate the need for other industry- or company-specific data. Many of the company’s drugs are patented and Bamatosis’ (a best seller) patent will expire in 2 years. Over the last five years, this drug alone has accounted for 20% of the company’s sales. The auditor’s evaluation is that the company’s trends this year should be similar to the trend over the last few years and won’t deviate very far from the industry norms.

Question:

Identify 4 financial reporting risks that you will address during the audit and discuss how you will address those risks.