Preliminary analytical procedures revealed that the gross profit margin increased unexpectedly from last year.As a result,the auditor should consider an increased risk of material misstatement in both sales and inventory.

Question

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An unexpected increase in gross profit margin may indicate that either sales have increased or inventory costs have decreased. Therefore, the auditor should consider an increased risk of material misstatement in both sales and inventory to ensure the increase in gross profit margin is not due to fraudulent activities.

Preliminary Analytical Procedures Revealed That the Gross Profit Margin Increased