Requirements a$.$ and b$.$ Evaluate the potential significance of each of the changes in ratios or trends identified in your analysis on the fair presentation of financial statements and state the$$ follow$-$up procedures you would perform for each fluctuation to determine whether a material misstatement exists. $($You can select the same$$ follow$-$up procedures for more than one$$ exception.$)$

View the list of potential significances.

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$$View a list of follow$-$up procedures.

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Exception

Potential Significances

Follow$-$up Procedures

$1.$ Commission expense as a percent of sales was constant for several years but has increased significantly in the current year. Commission rates have not changed.

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$2.$ The rate of inventory turnover has steadily decreased for three years.

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$3.$ Inventory as a percent of current assets has steadily increased for four years.

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$4.$ The number of days$$ sales in accounts receivable has steadily increased for three years

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$5.$ Allowance for uncollectible accounts as a percent of accounts receivable has steadily decreased for three years.

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$6.$ The absolute amounts of depreciation expense and depreciation expense as a percent of gross fixed assets are significantly smaller than in the preceding year.