An auditor is performing a review of a nonissuer's financial statements. The auditor notes that the gross profit percentage has declined significantly. Management explains that this is due to a new product line with lower margins. Which of the following procedures is MOST appropriate to corroborate this explanation?

Answer options:

Perform a physical inventory count.

Send confirmations to customers purchasing the new product.

Analyze the ratio of sales mix and margins by product line.

Vouch sales invoices to shipping documents.

How to approach this question

Review Engagement = Inquiry + Analytics. Do NOT choose Audit procedures (Count, Confirm, Vouch). Choose the Analytic.

Full Answer

C.Analyze the ratio of sales mix and margins by product line.✓ Correct

In a review engagement, evidence is primarily obtained through inquiry and analytical procedures. Analyzing the sales mix and margins by product line is an analytical procedure that directly addresses management's explanation.

Common mistakes

Selecting audit procedures (A, B, D) for a review engagement.

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