In Parts I (pp. 257-259) and II (pp. 294-296) of this case, you performed preliminary analytical procedures and assessed acceptable audit risk and inherent risk for Pinnacle Manufacturing.

The auditor also assesses fraud risk as part of risk assessment procedures performed during audit planning. You have been invited by the audit partner on the Pinnacle engagement to participate in the fraud brainstorming session conducted as part of audit planning. The purpose of Part III is to identify fraud risks and the response to these fraud risks in the audit of Pinnacle Manufacturing.

d) In Part I of this case you performed preliminary analytical procedures on Pinnacle's financial statements. Identify changes in account balances or ratios that you believe indicate the potential for fraud, and describe the nature of the potential fraud.