Audit procedures: Account for all inventory tags and count sheets, Test the pricing of inventory, Calculate inventory turnover rates, Select items of equipment from the accounting records, Discuss the adequacy of allowance for doubtful accounts, Review the cutoff of receivables around year-end, Examine cash receipts subsequent to year-end, Review sales returns subsequent to year-end, Examine new debt agreements for the current year, Review sales and related product cost data, Obtain current interest rates from an independent pricing source, Review repairs and maintenance accounts for proper classifications, Review bank confirmations, Review loan agreements for liens and restrictions on property, plant, and equipment, Review depreciation policies, Review insurance coverage on assets

For each of the following situations, based off prior year observations, current year observations, and the client's assertion for change, note auditor's expectations and the audit procedure that would be used (see list above):

1) Prior year observation: Gross profit has steadily increased approximately 3% each year.

Current year observation: Gross profit increased by 10%

Client assertion for change: While inflation rocked the general economy, the luxury car market remained strong due to the lack of supply of used cars. As such, we were able to sell our expensive autos at a larger profit margin than other dealers.

2)

Prior year observation: Interest expense tends to remain the same from year to year, except for 3 years ago when a large bond was issued.

Current year observation: Interest Expense declined significantly

Client assertion for change: Just before the interest rate hike, we were able to refinance our bond and also secure a low-interest loan through the State.

3)

Prior year observation: Property, plant, and equipment (PPE) acquisitions tend to fluctuate with the needs of the company, but not usually significantly.

Current year observation: Expenditures recorded for PPE declined about 22% in the current year, a significant change

Client assertion for change: The company did not change any PPE acquisition and recording policies, but ironically did acquire a fair amount of new equipment throughout the year.

4)

Prior year observation: The company tends to sell more vehicles during year-end, as it coincides with the holiday season.

Current year observation: Sales were up significantly, especially compared to any other time during the year in the first quarter of the year, while final quarter sales were down significantly.

Client assertion for change: The company experimented with a targeted ad campaign that appeared to be effective.

5)

Prior year observation: As assets are usually fully depreciated at the time of disposal, the company historically has few losses on retired assets.

Current year observation: The company recorded substantial losses on asset disposals

Client assertion for change: The company feels that the losses were due to increased asset usage