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April 24, 2014

Homework Help: Auditing

Posted by Nick on Sunday, December 11, 2011 at 9:06am.

I need help with this. I was presented with this question: Analytical procedures show that inventory turnover decreased from 3134 days to 27 days, and gross margins declined to the lowest level in five years. What might this indicate about the risk of misstatement with respect to inventory and inventory purchases?

I think that the risk of misstatement would be high. The company is at risk of being in a financial crises. The gross margins fell from 20.1% to 18.0% in the five years which would indicate that the inventory is having problems. But I am not so sure if this is right. Can someone please let me know if I am correct?

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