Question

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should:

1) Express an opinion that is qualified due to the inability of the client company to continue as a going concern.
2) Evaluate management's performance in causing this decline.
3) Require note disclosure.
4) Consider the possibility of a misstatement in the financial statements.

Answer 1

The auditors should consider the possibility of a misstatement in the financial statements.

Step-by-step explanation:

The auditors should consider the possibility of a misstatement in the financial statements. A decline in the gross profit percentage could indicate that there may be errors or irregularities in the financial reporting. The auditors would need to investigate further to determine the cause of the decline and assess the potential impact on the financial statements.