Unformatted text preview: the difference is approximately $82,000 (42.2% - 40.6% x $5,126,000) which appears to be significant. Of course, the decline in Jones' prices may be greater than the industry due to exceptional competition. b. As the auditor, you cannot accept Adams' explanation if $82,000 is material. The decline in gross margin could be due to an understatement of drug inventory, a theft of drug inventory, or understated sales. Further investigation is required to determine if the decline is due to competitive factors or to a misstatement of income....
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- Spring '11
- Financial audit, gross margin, Gross margin percentage