Auditing of Havelock Company Research Paper Example | Topics and Well Written Essays - 2000 words

Auditing of Havelock Company - Research Paper Example The company might be interested in recording such expenses in administrative costs of the company rather than inventory. This will help Havelock achieve the increase in loss and thus claiming tax refunds. Havelock might not be interested in paying taxes to improve its cash flows. Havelock operates in a dynamic industry, which comprises of retail customers as well (Havelock Europa, 2012d). The choices and demands from the customers change very often which may lead to a decline in NRV of the inventory. There is a risk that Havelock may ignore to lower down its inventory valuation to NRV. Though the current ratio of Havelock is 1.4, it is facing liquidity pressures. Payments to the suppliers have also been delayed. The average period of payment to the vendor is 52 days as compared to 36 in 2011 (Havelock Europa, 2012b). The company is under pressure to meet the tough deadlines of the financers on a quarterly basis. In case, it does not pay the interest and principal due, the bank would be entitled to the whole of the principal repayment on an immediate basis (Havelock Europa, 2012e). Due to such pressures, the company has not announced any dividend payments. Amounts on charities have also decreased from  £ 900,000 in 2012 as compared to  £2,443,000 in 2011 (Havelock Europa, 2012b). The company has resorted to additional overdraft facilities in order to meet its liquidity requirements. More credit facilities have been opted for by Havelock (Havelock Europa, 2012d). The fact that the company will increase its production is still remote. It has just entered into an agreement with HP financers to purchase a new plant, which will increase its production by 50% (Havelock Europa, 2012a).