1) When analytical procedures disclose unexpected changes in financial relationships relative to prior years, the auditors consider the possible reasons for the changes. Give two possible reasons for each of the following significant changes in relationships (Note: Refer to p.141 of the textbook for guidance):

a. Percentage of Cost of Goods Sold to Sales has significantly increased from the prior years rate.

b. The rate of inventory turnover (ratio of cost of goods sold to average inventory) has significantly declined from the prior years rate.

2) Three cases below are independent from one another.

1. Controls of the client company appear strong. Auditors tested the controls and found them to be strong and operate effectively.

2. Controls of the client company appear strong, but auditors decide not to test them.

3. Controls appear weak.

For each case:

a. Is the assessed level of control risk high or low?

b. Is the acceptable detection risk high or low?

c. Based on the acceptable detection risk, explain the scope (nature, timing, and extent) of substantive procedures to be performed.