For each of the following scenarios, indicate whether earnings quality is likely to be high, moderate, or low. Based on your assessment, how might an auditor adjust the nature or extent of audit testing, including investigations into possible earnings manipulation?

a. A drug manufacturer has exceeded analyst forecasted earnings for five consecutive years. During that period, the company has received FDA approval for four major drugs, all of which have six or more years of patent protection against competition.

b. A clothing retailer has increased its net income in each of the past four years. During this profitable period, the company has continually decreased the percentage of accounts receivable that are reserved as uncollectible.

c. A paper manufacturer has been slightly underperforming against analyst expectations but generating small profits over the past two years. However, the manufacturer is outperforming its three main competitors, all of which have been generating significant losses during the same period.

d. A home improvement retailer that has a dominant market share utilizes conservative accounting policies and discloses timely information about its performanceboth good and bad-to the analysts who follow the company.