As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30 per cent in the preceding year to 20 per cent 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 could be an indication of a misstatement in the financial statements, whether intentional or accidental. Therefore, the auditor should consider the possibility of an error and investigate further to determine the cause of the decline. It is not necessary to express an opinion that is modified due to the inability of the client company to continue as a going concern or evaluate management's performance without more information. While footnote disclosure may be required depending on the materiality of the decline, it is not the first action the auditor should take.

As a Result of Analytical Procedures, the Independent Auditor Determines