Analytical review can be an extremely powerful tool in identifying potential problem areas in an audit. Analytical review can consist of trend and ratio analysis and can be performed by comparisons within the same company or comparisons across the industry. The following information shows the past two periods of results for a company and a comparison with industry data for the same period:

Required
a. What are the advantages and limitations of comparing company data with industry data during the planning portion of an audit?
b. From the preceding data, identify potential risk areas and explain why they represent potential risk. Briefly indicate how the risk analysis should affect the planning of the audit engagement.
c. Identify any of the above data that should cause the auditor to increase the level of professional skepticism.

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ANALYTICAL DATA FOR JONES MANUFACTURING Industry Average a of Sales Prior Period Percent (000 Percent Percent (000 omitted of Sales omitted) of Sales Change 10 57.5 $10,000 $2,000 100 $11,000 100 29.5 Cost of goods sald Accounts payable Sales commissians Inventory tumover Average number of days to collect Employee turnover Return an investment $1,200 $500 $1,980 $550 18 14.5 Not available 14% 14.3% 71