Trend analysis, common-size financial statements, and ratios are presented for the Brody Corporation in Figure 5.4. Assume that you are auditing Brodys financial statements for the year ended 12/31/X8. You have performed tests of controls over the recording of gross sales and believe that the system is operating effectively and that 7 percent represents an accurate estimate of the increase in gross sales for 20X8 over the amount for 20X7. You also should assume that the financial statements for 20X6 and 20X7 are not misstated.

A) Analyze Figure 5.4 and identify any accounts that appear to represent significant variations from what one might expect. For each of the accounts, identify another account that might also be out of line due to the manner in which the double-entry bookkeeping system records transactions.

B) Identify any ratios that appear to represent significant variations from what one might expect. For each ratio, identify the financial statement account or accounts that may be misstated.

FIGURE 5.4 Technigues for Analtical Procedurea