Audit of Home Improvement Retailors

Home Depot and Lowe’s are both large successful home improvement retailers. This paper discusses the background of both companies and goes into detail about the financial ratios including profitability and liquidity ratios. The paper also discusses business risks, audit risks, and the proper audit procedures that are necessary. The paper focuses on audit procedures of three important asset accounts: Cash, inventories, and accounts receivable.

Team Members: Julie November Shuai Guo Wenqian Zhu Yusi Zeng Zongxian Wang

Background Yusi Zeng No matter if customers are a homeowner,
As one of the world’s largest home improvement retailers, Home Depot sells a variety of merchandise including plumbing, electrical, kitchen, hardware, building materials, paint, flooring, and lawn and garden products. The diversity range of products enable it to improve sales and profitability. In additon, in order to get a better customer satisfaction scores and gain comparative advantage, Home Depot offers various services including information technology, credit card services and installation services. The services have given it a wide customer base that including three types of customers, Do-It-Yourself( DIY), Do-It-For-Me( DIFM), and professional customers. Lowe’s, the world’s second home improvement retailers has strong financial performance that it can meet the need of operation and expanding. The operation profit of 2012 is $3137 millions which is 7.9% more than that of 2011. This good financial performance shows Lowe’s operated well and it has the ability to exband. On the other side of the coin, the Home Depot reported declined liquidity in 2012 that its current assets growth(5.9%) is extremly low than its current liability(22.2%). Moreover, Home Depot has recalled over 107,000 units of products. While Lowe’s weakness is substantial debts that burden the performance. The ratio of debt to equity from 46.13% in 2011 to 65.51% in 2012 which may led to higher interest expense and eventully affect its