AAA Manufacturing, Inc. had an audited accounts receivable balance of $480,145 as of January 1, 2023. AAA Manufacturing uses a lockbox* to collect receipts from customers. A print out by the bank indicates 9,543,951 of receipts from customers during the year ending December 31, 2023. The balance for accounts receivable is $765,827 at December 31,2023 . What is your expectation for sales for the year? Definition of lockbox - It involves directing customers to send their payments to a designated lockbox address where the bank collects and processes the payments on behalf of the business. Your Answer: Answer The audit team is in the planning stages of the audit. The team has performed financial analysis indicating a gross margin of 45% for the prior year and 55% for the current year. How will this increase in gross margin affect the audit planning? 1) The better gross margin means greater profitability. Better gross margin decreases inherent risk and then therefore decreases audit risk. 2) The better gross margin means that sales are higher and expenses are lower. Both sales and expenses are at increased audit risk due to the change from the prior year. 3) The determination of increased or decreased audit risk depends on the audit team's expectation of gross margin. 4) The better gross margin increases audit risk because it may mean that inventory is overstated. The potential for overstatement increases audit risk