*Hello please help me with these three questions... I WILL GLADLY THUMBS UP.

1. Li Chen has calculated profitability ratios using data extracted from his clients pre-audit trial balance. He also has the values for the same ratios for the preceding two years (using audited figures). The data for the gross profit and profit margins are:

		2022		2021		2020
Gross profit margin		45%		35%		40%
Profit margin		9%		15%		20%

Li is a little confused because the profit margin shows declining profitability but the gross profit margin has improved in the current year and is higher in 2022 than in the previous two years.

Create a list of possible explanations for the pattern observed in the gross profit and profit margins.

2. In two paragraphs create an example of a client closing procedure. Using your example, analyze the accounts that would be affected if the closing procedure is performed inadequately.

3. During the risk assessment phase for a new client, you have been assigned the task of identifying related parties. You need to refresh your memory regarding why identifying related parties is necessary in the audit. Access the Clarified Statements on Auditing Standards at the AICPA website (https://www.aicpa.org). Navigate to AU-C 550 and answer the following questions:

a. What is an arms-length transaction as defined by the standard?

b. Identify examples of how related party relationships and transactions may give rise to higher risks of material misstatement than transactions with unrelated parties.