Assume that you are auditing Paradox, Inc., a manufacturer of hand-held personal digital assistants (PDAs). The following is information that you have extracted from the audit working papers.

- The market for PDAs is very competitive with several companies battling for market share, which in turn has put downward pressure on profit margins.

- Rapid advances in technology have further reduced the product life cycle. In the race to remain competitive a number of companies, including Paradox, have significantly increased their research and development efforts.

- Funding the increased R&D has been a growing concern for Paradox. The company currently is actively seeking capital.

- Paradox is a public company listed on the NASDAQ exchange. Top managements compensation is heavily tied to the companys profitability.

- The company does not have an internal audit function and the audit committee has not been very diligent in the past.

2. How will-SAS No. 99 affect the procedures you will perform for this audit?