In the audit of Worldwide Wholesale Inc., you performed extensive ratio and trend analyses. No material exceptions were discovered except for the following:
1. Commission expense as a percentage of sales had stayed constant for several years but has increased significantly in the current year. Commission rates have not changed.
2. The rate of inventory turnover has steadily decreased for four years.
3. Inventory as a percentage of current assets has steadily increased for four years.
4. The number of days' sales in accounts receivable has steadily increased for three years.
5. Allowance for uncollectable accounts as a percentage of accounts receivable has steadily decreased for three years.
6. The absolute amounts of amortization expense and amortization expense as a percentage of gross fixed assets are significantly smaller than in the preceding year.
REQUIRED
a. Evaluate the potential significance of each of the exceptions above for the fair presentation of financial statements.
b. State the follow-up procedures you would use to determine the possibility of material misstatements.
c. What do these changes indicate about the overall financial position of Worldwide Wholesale Inc.?