One of your audit clients manufactures fishing boats and sells them all over the country. Boats are sold to dealers who finance their purchases on a floor-plan basis with their banks. The banks usually pay your client within two weeks of shipment. The company’s profits have been increasing over the past several years. You have obtained the following information related to your 2007 audit ($ in millions):

Required
a. From the data shown, identify potential risk areas and explain why they represent potential risks.
b. Suggest possible explanations for any unexpected results.
c. What inquiries and follow-up audit procedures might be performed to determine the accuracy of the client’s data?
d. How might the CFO use accounts receivable and inventory to conceal the embezzlement ofcash?

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Major Competitor Accounts Receivable Inventony Accounts Payable Sales Gross Profit % Number of Days Sales 2007 2006* 2005*2004 2003 (2007 unaudited) 1.8 5.5 1.5 43.6 17% 16 3.3 16.0 10.0 2.6 84.7 77.9 19% 17% 2.3 7.2 1.9 56.8 18% 15 6.8 4.2 13.9 3.2 110.3 21% 14 5.1 3.1 39.8 18% 16 29 in Receivables Number of Days Sales in 69 47 46 46 47 46 Ending Inventory Audited