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    Question

    While applying analytical procedures, auditor notes

    gross profit margin fell from 25% to 18% though sales increased. Inventory valuation appears unchanged. What should be auditor’s response?
    A Ignore since sales are higher. Correct Answer Incorrect Answer
    B Obtain explanations and corroborative evidence for unusual fluctuations. Correct Answer Incorrect Answer
    C Assume misstatement and qualify opinion. Correct Answer Incorrect Answer
    D Conclude cost of goods sold is misstated. Correct Answer Incorrect Answer
    E Escalate to regulators directly. Correct Answer Incorrect Answer

    Solution

    Analytical procedures identify unusual variances. Auditor must seek explanation and supporting evidence before drawing conclusions.

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