When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit. The auditor should:
A) investgate the possibility the client may have made an error in their cost of goods sold computation.
B) assist management in developing greater cost efficiencies in their product line.
C) prepare a going concern opinion for the client.
D) advise the client to have extensive disclosure to alleviate investor concerns.

Question

Quizplus · Accepted Answer

A significant decline in gross profit percentage warrants investigating the possibility of errors in the computation of cost of goods sold. This could be a red flag for possible fraud or error in financial statements. Therefore, the auditor should investigate the issue further. Choice B is not within the auditor's responsibilities, and choice C and D are premature at this stage.

When Performing Planning Analytical Procedures for a Client the Auditor