Once you have completed the preliminary analytical review stage of the audit, you will next determine the implications for audit planning from the risks identified in the analysis. Suppose you are the audit manager for McNulty Co., a large New Zealand canner of fruit and nuts sold through grocery stores. The preliminary analytical procedures reveal the following items that peak your interest:

For each of the items above, describe the accounts and management assertions that are at increased risk.

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Account/Area (a) Long-Term Debt (b) Operating Margins (c) Fixed Assets (d) Revenue Recognition (e) Accruals (f) Deferred taxes (g) Inventory (h) Accounts Receivable Problem and Associated Impact on Account in Question or Other Accounts Interest expense as a percentage of long- term debt decreased Sales returns as a percentage of gross sales has decreased Net account balances steady despite closing some unprofitable operations Large increase in accounts receivable at end of year Prepaid assets as a percentage of total assets decreases Liability remained steady despite taking on some new long- term assets Inventory turnover has decreased Days receivable has increased Management Assertion at Risk of Misstatement