You are an auditor for Rodgers & Co. and have recently taken on a new client, ABC Manufacturing Company. You are in the initial stages and your manager asks you to respond to all inquiries regarding the audit evidence, the process of revenue and purchase cycle, and the audit report. PART A: Audit evidence (8 marks) During the planning phase, you come to the conclusion that analytical examination of some operating accounts, reveals the following facts: - Sales growth is significant while the market is experiencing flow difficulties. - Receivable turnover ratio increased considerably and the accounts receivable balance at the closing date have doubled. - Increase of inventories purchase paid in cash, while production remains at a stable level compared to that of the previous year. Required: 1. One purpose of performing analytical procedures in the planning phase of an audit is to assess the client's financial condition. Explain how the assessment of a client's financial condition can affect the auditor's decisions regarding evidence accumulation in later stages of the audit. (3 marks) 2. Specify the worrying facts noted by the analytical examination (do not copy the text) and the necessary controls to be carried out and type of evidence. (3 marks) The trial balance taken from the books of ABC Company before year-end is presented as follows: Accounts Debit Credit Cash in bank Accounts receivables 90.000 145,000 225.000 465,000 440,000 Building Accounts payable Capital stock Retained camins 235.000 200.000 210.000 500.000 300.000 20.000 100,000 Interest payable Collateral for loans 1.565,000 1.568,000 Indicate which accounts should be confirmed with outside sources and by whom they should be confirmed? (2 marks)