As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should:
A) express an opinion that is modified due to the inability of the client company to continue as a going concern.
B) evaluate management's performance in causing this decline.
C) require footnote disclosure.
D) consider the possibility of an error in the financial report.

Question

Quizplus · Accepted Answer

A decline in gross profit percentage may indicate a possible error in the financial report. Therefore, the auditor should consider the possibility of such error and perform additional audit procedures to further investigate the cause of the decline. This would help the auditor to form an opinion on whether the financial report is materially misstated.

As a Result of Analytical Procedures, the Independent Auditor Determines