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.

In 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?

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X1 X2 X4 Building supply revenues $90,100 99,380 $117,468 S137,085 $160,800 Lumber brokerage revenues S63,480 90,141 $90,100 99,380 162,489 S200,564 $250,941 Inventory turn days Building supplies Lumber brokerage Gross margin Building supplies Lumber brokerage 32 34 31 27 20.1% 18.5% 18.6% 19.196 18.0% 30% 4.1% 4.2%