The following information shows the past two periods of results for a fictional company, Jones Manufacturing, and a comparison with industry data for the same period: a. Assume that the auditor expects that the clients performance in the current year will be similar to its performance in the prior year. From the preceding data, identify potential risk areas and explain why they represent potential risk. Briefly indicate how the risk analysis should affect the planning of the audit engagement. b. Identify any of the above data that should cause the auditor to increase the level of professional skepticism.

ANALYTICAL DATA FOR JONES MANUFACTURING Industry Average as a%of Sales Current Prior Period Prior % Period (000 Current % Of Sales %Change (000 omitted) of Sales omitted) $11,000 $3,250 $6,050 $1,980 $550 4.2 48 100 20 60 100 29.5 $10,000 $2,000 $6,000 $1,200 $500 6.3 39 100 22.5 59.5 14.5 10 Not available 5.85 36 Sales 57.5 0.83 65 Inventory Cost of goods sold Accounts payable Sales commissions Inventory turnover Average number of (33) 23 days to collect 5% 14% 35% BY Employee turnover Return on investment 4 13.8 30 60 14.3% Debt/Equity 60% 71