This case will enable you to practice conducting planning and substantive analytical procedures for accounts in the revenue cycle. When analyzing the financial data, you may assume that the 2015 information is unaudited, while prior year data is audited. As you complete this case, consider the following features of and trends in the pharmaceutical industry and for PharmaCorp specifically: After a long period of industry dominance by companies in the United States, the United Kingdom, and Europe, these companies are facing increasing competition from companies domiciled in emerging economies, such as Brazil, India, and China.

There exists significant uncertainty in the market because of recent regulation covering health-care and government payouts for certain procedures and related pharmaceuticals.

Health-care policy makers and the government are increasingly mandating what physicians can prescribe to patients.

Health-care policy makers and the government are increasingly focusing on prevention regimes rather than treatment regimes, thereby leading to shifts in the demand for various pharmaceuticals.

The global pharmaceutical market is anticipated to grow by 5% to 7% in 2016 compared with a 4% to 5% growth rate in 2015, according to a leading industry analyst publication.

Beginning in 2014, PharmaCorp initiated and executed a significant company-wide cost reduction initiative aimed at improving manufacturing efficiency, cutting back on research and development expenses, and eliminating unnecessary corporate overhead.

PharmaCorp’s policies for extending credit to customers have remained stable over the last three years. PharmaCorp’s credit-granting policies are considered stringent within the industry, and analysts have sometimes criticized the company for this, contending that such policies have hindered the company’s revenue growth relative to industry peers.

Two of PharmaCorp’s popular pharmaceuticals, Selebrax and Vyvox, came off patent during the fourth quarter of FYE 2015. These pharmaceuticals now face competition in the generic drug portion of the overall industry market.

Information specific to the Acquisition and Payment Cycle

Raw materials inventory required in the businesses are purchased from numerous suppliers. No serious shortages or delays of raw materials inventory were encountered in 2015, and none are expected in 2016. PharmaCorp has successfully secured the raw materials inventory necessary to meet its requirements where there have been short-term imbalances between supply and demand, but generally at higher prices than those historically paid.

A risk that companies in this industry face with respect to the acquisition and payment cycle is that there is a possibility of failing to maintain the integrity of supply chains, possibly resulting in intentional and criminal acts such as product diversion, product theft, and counterfeit raw materials inventory.

In response to pricing pressure, several major suppliers changed their policy with respect to discounts for early payment of amounts due on credit sales. In response, PharmaCorp changed its policy of paying within two weeks to paying within four weeks since it is no longer monetarily beneficial to do so from a cash management perspective.

Required:
Identify Suitable Analytical Procedures.