Stainless Steel Specialties (SSS) is a manufacturer of hot water-based heating systems for homes and commercial businesses. The company has grown about 10% in each of the past five years. The company has not made any acquisitions. Following are some of the statistics of the company during the past five years:

Additional information that is available to the auditor includes the following:
• The company has touted its new and improved technology for both the increase in sales and gross margin.
• The company claims to have decreased administrative expense thus increasing net profits.
• The company has reorganized its sales process to a more centralized approach and has empowered individual sales managers to negotiate better prices to drive sales as long as the amounts are within corporate guidelines.
• The company has changed its salesperson compensation by increasing the commission on sales to new customers.
• Sales commissions are no longer affected by either returned goods if the good are returned more than 90 days after sale and/or by not collecting the receivables.
SSS has justified the changes in sales commissions on the following grounds:
• The salesperson is not responsible for "quality" issues-the main reason that products are returned.
• The salesperson is not responsible for approving credit. Rather credit approval is under the direction of the global sales manager.

Required
a. What is the importance of the information about sales person compensation to the audit of receivables and revenue? Explain how the information would be used in conducting the audit.
b. Perform an analytical review of the data included in the table and the information about the change in performance. What are the important insights that the auditor should gain from performing the analytical review?
c. Why should the auditor be interested in a company's stock price when performing an audit since stock price is dependent, at least in part, on audited financial reports?
d. What data might be considered as fraud risk factors?
e. Identify specific audit procedures that should be performed as a result of the analytical procedures performed by theauditor.

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OVERVIEW OF OPERATIONAL DATA STAINLESS STEEL SPECIALITIES (SSS) (SALES AND NET INCOME REPORTED IN $ MILLIONS) Operations 2007 2003 2004 2005 2006 (unaudited) Sales Net Income Stock Price Economic Growth in Areas Served $800 $880 $950 $1,050 $52 $28 1.13 $28 $17 1.00 $38 $24 1.04 $42 $19 1.09 $1,300 $68 $47 1.14 (Index with 1.00 for 20x1) Percent of Heating Market by SSS Accounts Receivable Percent of Sales Made in Last Quarter Gross Margin 8.9% $180 38% 28% 9.4% $170 36% 28.3% 9.6% $196 40% 28.8% 10.8% $210 38% 29.2% 14.0% $297 43% 33.6%