In audit planning the audit of Construction Industry Resources, Inc., a building supply company. You have completed analytic procedures relevant to purchases and inventory. The results of these procedures are included in Figure 8.13.
Figure 8.13. Selected Financial Information ($000)

Required:
Analytical procedures show that inventory turnover decreased from 31,34 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?

Transcribed Image Text:

X1 X2 X3 X4 X5 Building supply evenues 90,100 S 99,380 S 117,468 $ 137,085 s 160,800 Lumber brokerage revenuesSs45,021 63,480 S90,141| $ 90,100 S 99,380 S 162,489 S 200,564 S 250,941 27 Building supplies Lumber brokerage Gross margin Building supplies Lumber brokerage 32 34 31 7 20.1% 18.5% 18.6% 19.1% 18.0% 13.9% 4.1% 4.2%