CAF-8 · Chapter 7 · Question 3 of 10
An auditor compares a client's current year gross profit margin of 45% against the prior year's margin of 28%. The client has not introduced new products or raised prices. How should the auditor proceed?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Inquire of management regarding the fluctuation, and perform additional procedures to corroborate their explanation.
Explanation
If analytical procedures identify significant fluctuations or inconsistent relationships, ISA 520 mandates that the auditor must inquire of management and obtain sufficient appropriate evidence to verify management's responses.
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