Lo 5, 7 The Following Information Shows The Past Two Periods

7-49 LO 5, 7 The following information shows the past two periods of results for a fictional company, Jones Manufacturing, and a com- parison with industry data for the same period: ANALYTICAL DATA FOR JONES MANUFACTURINGPrior Period (000 omitted)Percent of SalesCurrent Period (000 omitted)Percent of SalesPercent ChangeIndustry Average as a Percent of SalesSales$10,000100$11,00010010100Inventory$2,00020$3,25029. 557. 522. 5Cost of goods sold$6,00060$6,050550. 8359. 5Accounts payable$1,20012$1,980186514. 5Sales commissions$5005$550510Not availableInventory turnover6. 3—4. 2—(33)5. 85Average number of days to collect39—48—2336Employee turnover5%—8%—604Return on investment14%—14. 3%—13. 8Debt/Equity35%—60%—7130a. 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.

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