One of the firm’s largest clients, Ropper Company, makes gas grills, gas stoves, and gas dryers. Its financial position has deteriorated, but its management is confident that the worst has passed. Management points to new home starts associated with the current drop in interest rates and notes that it has implemented total quality management in operations and has cut down the number of defects in products. However, the auditor remembers reading in Consumer's Report that Ropper has had a much higher than average incidence of repairs in recent years. The relevant financial information for the past four years is as follows (dollars stated in millions, 2003, is unaudited):

Required:

a. Suggest reasons for the different level of sales returns in 2003. Prioritize the list based on the information given.

b. Indicate the inquiries and follow-up audit procedures that might be performed before developing specific audit procedures to test the most likely hypotheses.

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2003 2002 2001 2000 Sales $178.4 $162.0 $160.2 $154.3 Sales returns and allowances 2.1 8.3 7.4 6.8 Returns as a percentage of sales 1.17% 5.12% 4.62% 4.40% Net income 8.3 2.1 2.8 3.1