It is stated in the chapter that understanding a client’s business is important to the conduct of an audit.

Required
a. Explain how an understanding of a business and the business environment would be important to the auditor in evaluating accounts such as:
1. Inventory
2. Allowance for uncollectible accounts
3. Warranty liability and warranty expenses
b. Explain how the understanding of the business may provide value-added services that the auditor might be able to utilize to assist a privately-held client.