Your knowledge of general economic conditions during the year ended December 31, 19X9, included the facts that inflation had been recorded at a high 12 percent rate, which caused a serious slowdown in business (real GNP declined 6 percent) and a steep drop in the stock market (approximately 25 percent). Unemployment was high, even though unions were demanding large wage increases. Because of high interest rates and the stock market decline, money supplies were tight, and long-term financing was practically unavailable.

Discuss the effects of these conditions on your audits of the following companies for the year ended December 31, 19X9:

a. A construction contractor specializing in small office buildings on fixed-price contracts.

b. An investment company with 50 percent of its portfolio in common stocks and 50 percent in long-term bonds.

c. A manufacturing company that has always been only marginally profitable and whose 4 percent bonds mature January \(1,19 \times 0\).

d. A small finance company specializing in consumer loans.

e. A manufacturer whose warranty costs have historically averaged 5 percent of sales.