Houseco, and audit client of Jones, CPA, for the past five years, is a manufacturer of various household products.Approximately four years ago, Houseco developed a better toaster than had been available and sales took off, especially during the most recent two years, 20X7 and 20X8.Currently, the company controls approximately 25 percent of the toaster market in the United States.In addition, the company manufactures other products, including vacuum cleaners, floor polishers, and electric fondue pots.

Much of the increased sales performance is due to Donald Skaldon, who became the chief executive officer in 20X4.Donald and several other officers were able to accomplish a leveraged stock buyout in 20X6.This seems to have worked out very well since Donald suggest that his net worth grew from less than $300,000 to well over $5 million due to increases in the value of the common stock he holds in the company.He is also excited since the company's unaudited results show earnings per share of $1.21, once cent more than the most optimistic analysts had projected.He pointed out to Jones that sales are up over 38 percent compared to the previous year and net income has increased by 54% as well.All is well.

Jones is beginning the risk assessment analytical procedures for the 20X8 audit to obtain information to help plan the nature, timing and extend of other audit procedures.More specifically ,he wants to identify areas that may represent specific risks relevant to this year's audit.

Using the balance sheet and income statement attached to identify accounts that may represent specific risks relevant to this year's audit. For each area, briefly note why you think it represents a risk.

AutoSave OFF House Co. Financials Draw Page Layout Formulas Review View Tell me Times New Roman * 11 AA ab Wrap Text Custom paste IUV OvAv Merge & Center $ ~ % " Conditional Form Formatting as Tal C23 X fx |14800 Housees Balance Sheet HORIZONTAL ANALYSIS VERTICAL ANALYSIS (12.31.07-12.3106Y (12.31.08-123167Y December 31, 2006 December 31, 2007 December 31, 20is December 31, 2006 December 31, 2007 December 31, 2048 12.31.06 Dollars (OOO's Omitted) Cash 14,402 27 801 $1,076 18 049 33% 43% 43%% 93% 84% Inventory - RM 9.182 14% 19% 24:2% 97% 491 4,151 1% 1% 4% 30% 10 Inventory - FG 6189 9,J37 16.935 15% 15% 14% 48% Total inventories 9,762 39,135 30%% 33% 101% 100% 1.449 103% Fixed assets (net) 18 267 15.900 24.029 20% 13% 31% 43 202 18.140 100%% 100%% 100%% $1% 16 Liabilities T.344 $ 15,072 $ 23%% 109% -12% Accrued liabilities 3.127 4,710 THE 4% -14%% 2 707 21 Income taxes payable 3,782 4% 4% 1% 3%% 19%% 69% 44%% 2 Total Current Liabilities 14.732 24,059 23,030 34% 37% 63%% 34% 30%% 34% 213% Deferred income taxes 1.254 1,881 2% TO% 2% 2% 50% 30,217 45,154 74% 26 Stockholders Equity 27 Common Stock 7% 5.210 18%% 12 312 31,172 12% 12% 138% 29 Total Stockholder Equity 12.985 20 087 30%% 19% 31% 20% 89% 31 Total Liabilities and Stockholder Equity 100% 100% 100%% 32 Housees Income Statement HORIZONTAL ANALYSIS VERTICAL ANALYSIS (12.31.07-12.31.067 (12.31.08-12.31.67) 37 Period Ending December 31, 2006 December 31, 2047 Dollars (000's (mined) December 31, 208 December 31, 2006 December 31, 2007 December 31, 20is Gross Sales 104% 1019% Less: Returns and allowances 2 284 2 644 131% 42 N 76,144 28 234 $1,123 100% 100% 100% 41% 43 Cost of goods sold TO. 756 34.934 34% 45 Selling, advertising, RAD expenses 20,105 42 800 $4.285 33% 35% 1 12% 46 Income from operations 9.826 21,904 13% 12% 12 %% 47% 47 1.930 -18% 101% B Income before taxes 7,896 13.294 41% 3.807 6189 T.361 4% so Net income 4 089 5 T.105 10.954 51 EP 0.46 O.T 1.21 52 53 RATIOS Current Ratio Quick Ratio 10 12 23 Receivable turnover 4.7 Days' shes in ending receivables 6.1 ST.1 Inventory turnover 4.8 1125 60 Days' sales in ending inventory 760 0.11