Australian Wine Industry Practice Test

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During planning, an auditor notes that gross margin fell from 38% to 24% while sales volume and product mix were stable. What is the best initial audit response?

Ignore the change because analytical procedures are not used in planning Investigate the unexpected relationship and consider whether it indicates a risk of material misstatement Immediately issue a qualified opinion Reduce substantive testing because the lower margin is conservative

Correct Answer:

Investigate the unexpected relationship and consider whether it indicates a risk of material misstatement

Explanation:

Planning analytical procedures are used to identify unusual transactions, events, amounts, ratios, or trends. A significant unexplained decline in gross margin should be investigated and considered in the risk assessment.

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