Audit Sorokina

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Finance University under the Government of the Russian Federation**We aren't endorsed by this school

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FINANCE 12

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Accounting

Date

Dec 22, 2024

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Uploaded by MinisterNarwhalPerson1212

HOME CREATIVE TASK1Computational Analytical TaskFor “Yandex”Prepared by: Daria SorokinaReviewed by: LebedinskayaLubov Nikolaevna Moscow2024

#1 Analytical report to engagement partner.i.Yandex is a leading technology company in Russia, primarily known for itsinternet services and artificial intelligence. Founded in 1997, it dominates theRussian search engine market with approximately 82% market share and servesover 100 million monthly users. Yandex also holds a 34% share in contextualadvertising, leveraging platforms like Yandex. Direct to optimize campaignsthrough advanced analytics.The competitive landscape includes global players like Google, but Yandexdifferentiates itself with localized services and a diverse product range, includingYandex Maps and Yandex Mail. Financially, Yandex reported revenues of 249.3billion rubles in Q2 2024, reflecting a 37% year-on-year growth, with forecastssuggesting continued growth of 38-40% for the year.Strategically, Yandex is focused on innovation, particularly in AI, and isexpanding into other Russian-speaking regions while also pursuingsustainability initiatives. Overall, Yandex's strong market position andcommitment to technological advancement position it well for future growth inthe digital landscape.ii.Gross Margin Profit = GP/Net Sales * 100Gross Margin Profit (2023) = (800 125 – 360 033)/800 125 = 55%Gross Margin Profit (2022) = (521 699 – 233 219)/521 699 = 55%ROA = Net Income/Total Assets * 100ROA (2023) = 21 775/ 786 628 = 2,77%ROA (2022) = 47 615/ 616 719 = 7,72%ROE = Net Income/Shareholder’s Equity * 100ROE (2023) = 21 775/ 296 292 = 7,35%ROE (2022) = 47 615/ 338 178 = 14,08%iii.Gross Margin Profit:Remained stable at 55% for both years,indicating consistent profitability in core operations.ROA: Decreased significantly from 7.72% in 2022 to 2.77% in 2023, reflecting adecline in the efficiency of asset utilization to generate earnings.ROE: Also saw a notable drop from 14.08% in 2022 to 7.35% in 2023, suggestingreduced profitability relative to shareholders' equity, which could be attributedto increased costs or decreased net income despite higher revenues#2 Materiality and performance materiality for Yandex.

HOME CREATIVE TASK3To calculate materiality and performance materiality for Yandex, we will utilizethree different benchmarks based on the consolidated balance sheet andconsolidated statements of operations from their 2023 Annual Report (Appendix1 and 2). The benchmarks are:1.Total Assets: 0.5% - 1%2.Revenue: 5% - 10%3.Profit Before Tax: 1% - 2%From the annual report (pages 76-77), the following key figures:Total Assets: 786 628 million RUBRevenue: 800 125 million RUBProfit Before Tax: 43 147 million RUBMateriality CalculationsUsing the above figures, we can calculate materiality for each benchmark:1. Total AssetsMateriality:0.5% of Total Assets=0.005×786 628 million = 3 933 million RUB1% of Total Assets=0.01×786 628 million = 7 866 million RUB2. RevenueMateriality:5% of Revenue=0.05×800 125 million = 40 006 million RUB10% of Revenue=0.10×800 125 billion= 80 012 million RUB3. Profit Before TaxMateriality:1% of Profit Before Tax=0.01×43 147 million= 431 million RUB 2% of Profit Before Tax=0.02×43 147 million = 863 million RUB Performance MaterialityPerformance materiality is typically set at a percentage of materiality to reduce the risk that the aggregate of uncorrected and undetected misstatements exceedsmateriality. A common approach is to set performance materiality at around75%of overall materiality. For example, using the revenue benchmark:Overall Materiality: 40 006 million RUB(using the lower limit for conservatism)Performance Materiality= 0.75×40 006 million = 30 004 million RUB Among the three benchmarks, I would recommend usingRevenue (5-10%)as the basis for calculating materiality for Yandex due to the following reasons:Yandex is primarily a technology and internet services company, revenue directly reflects its operational performance and market position.

The tech industry can experience rapid changes in revenue due to market dynamics, making it essential to focus on revenue as a benchmark for assessing financial health.Investors and stakeholders often prioritize revenue figures when evaluating company performance, particularly in growth-oriented sectorslike technology.#3 Testing materiality level.ItemMateriality level (mlnRUB)Assertions to testRevenue 40 006Existence: Verify thatrecordedrevenuesactually occurred.Completeness: Ensureall revenue transactionsare recorded.Accuracy: Confirm thatrevenues are recordedat the correct amounts.Total assets3 933Existence: Validate thatreported assets exist asof the reporting date.Valuation: Check thatassetsarevaluedappropriately accordingto accounting standards.Completeness: Ensureall assets are included inthe balance sheet.Profit before tax431Completeness: Verify allincome and expensesare recognized properly.Accuracy: Confirm thatprofit calculations arecorrectbasedonunderlying data.Presentation:Ensurethat profit before tax ispresented correctly inthe financial statements.

HOME CREATIVE TASK5#4 Reasonableness check for balance sheet retained earnings and profit forthe period.Retained Earnings at 31 December 2023 = 193 577 million RUBCheck:Retained Earnings (end) = RE (beg) + Profit after tax – Dividends“We do not have any present plan to pay cash dividends on our shares in the nearterm” -> Dividends = 0RE (end) = 173 697 + 21 775 – 0 = 195 472 million RUBThe difference between the checked retained earnings and retained earnings inthe financial statements is 1 895 million RUB, which in the company’s scale isnot that big.However, this difference can be, for example, the result of differences inaccounting policies or estimates made during financial reporting - Differences inaccounting policies or estimates made during financial reporting. Or, forinstance, retained earnings are affected not only by net income but also bycomprehensive income, which includes unrealized gains and losses on certaininvestments or foreign currency translations. If there were significant itemsaffecting comprehensive income, these could lead to differences.#5 Receivable turnover ratio in days and its reasonableness assessment.Accounts Receivable Turnover Ratio = Sales / Average Accounts ReceivableAverage AR = (AR2022+ AR2023)/2Receivable Turnover in Days = 365 / Receivable Turnover RatioAccounts Receivable Turnover Ratio = 800 125/(58 014 + 85 444)/2 = 11,15ART in days = 365/11,15 = 33 daysYandex's accounts receivable turnover of 33 days for 2023 indicates a relativelyefficient collection process, especially when compared to industry averages.Generally, the average accounts receivable turnover in the technology sectorranges from 30 to 50 days, depending on the specific niche and marketconditions. This efficiency can be attributed to strong credit policies and effectivecollection practices, which are crucial for maintaining liquidity and operationalstability in a competitive environment. #6 Expectation test for depreciation charge for the year.

According to notes on page 90, the depreciation for PPE was calculated usingstraight-line method.Estimated useful lives go as follows (Appendix 3):Infrastructuresystemsandequipment3.0-10.0 yearsOffice furniture and equipment3.0 yearsBuildings10.0-20.0 yearsLand rights50.0 yearsLeasehold improvementthe shorter of 5.0 years or theremaining period of the lease termOther property and equipment2.0-10.0 yearsThe expected depreciation charge using the straight-line method:Expected Depreciation=Depreciable amount – Residual value/Average Useful Life So, let’s calculate each item of PPE and then sun it up (values of depreciableamounts are taken from the table on page 103 and no residual value could befound – Appendix 4).Infrastructure systems and equipment:Depr = 169 298/6,5 = 26 046 million RUBOffice furniture and equipment:Depr = 16 889/3 = 5 630 million RUBBuildings and land rights:Depr = 20 844/25 = 834 million RUBLeasehold improvement:Depr = 6 186/2,5 = 2 474 million RUBOther property and equipment:Depr = 18 494/5,5 = 3 363 million RUBTotal depreciation = 38 347 million RUBActual depreciation = 29 432 million RUBThe difference in depreciation charge of 8 915 million RUB can be explained, forexample, by:-Asset impairment, as if Yandex recognized significant impairments onits assets during the year, this could lead to a lower depreciationexpense;

HOME CREATIVE TASK7-Change in useful life, as if management revised the estimated usefullives of certain assets upwards, this would decrease the annualdepreciation expense;-If Yandex sold or disposed of significant portions of its PP&E during theyear, this would reduce the total depreciable base, etc.#7 Assessment of the company’s ability to continue as going concern.Yandex's financial performance for the year ending 2023 raises significantconcerns regarding its ability to continue as a going concern. For example, as fornow, the results of 2023 show lower results than the year before. Moreover,while the company maintains a positive equity position, the increasing liabilitiescould indicate rising financial stress – liabilities grew from 278 541 million RUBto 490 336 million RUB with a significant increase in debt (current and non-current portion) by more than 4 and almost 2 times subsequently. Plus, thesituation is worsened by geopolitical situation which aims to reposition thecompany amidst international sanctions and operational challenges in Russia butalso reflects the urgency of addressing its financial viability.Indicator calculation:Current Ratio=Current Liabilities/Current AssetsCurrent Ration = 310 895 / 347 661 = 0.89Looking at the result of the current ratio, which is lower than 1, it can be seenthat the company does not have enough current assets to cover the short-termobligations towards their creditors.

APPENDICESAppendix 1 Consolidated Balance Sheet

HOME CREATIVE TASK9Appendix 2 Consolidated Statement of OperationsAppendix 3 Property and Equipment. Estimated Useful Lives

Appendix 4 Property and Equipment