As part of doing analytical procedures, you need to consider when result of your analytics could present a problem. Alternatively, you need to have some sense for when the results of your analytics could be perfectly fine (i.e. the related risk is low). The purpose of this assignment is to get you thinking on how trends you see in the financials could lead you to think that there is a high or low risk that financial statements could be misstated. With this as background, please answer the following questions. I recommend using T-accounts or making up balances to fit the situations below to help you assess the scenarios. 1. Your client has an increase in its days sales outstanding ratio for the current year. DSO has increased from 30 days to 60 days. Please state a situation for which you would see this as presenting a high audit risk (i.e. a high risk that financial statements could contain a misstatement). Please also state a situation for which this trend would not present a high audit risk. (2 points) 2. Your client has seen a decrease in its allowance for doubtful accounts as a percent of gross accounts receivable. Please state a situation for which you would see this as presenting a high audit risk (i.e. a high risk that financial statements could contain a misstatement). Please also state a situation for which this trend would not present a high audit risk. (2 points) 3. Your client has seen an increase in its average debt balance but there is a decrease in its average interest rate paid on its debt. The average interest rate was calculated based on total interest expense divided by the average debt balance using the beginning and ending debt balance for the year. Please state a situation for which you would see this as presenting a high audit risk (i.e. a high risk that financial statements could contain a misstatement). Please also state a situation for which this trend would not present a high audit risk. (2 points) 4. Your client has seen an increase in its inventory balance of 50% but there is only a 20% increase in its allowance for obsolete inventory. Please state a situation for which you would see this as presenting a high audit risk (i.e. a high risk that financial statements could contain a misstatement). Please also state a situation for which this trend would not present a high audit risk. (2 points) 5. In doing balance sheet variance analysis, you note that your client is showing a decrease in retained earnings even though it is profitable in the current period. What is likely cause of this decrease? (2 points)