Explain how unacceptable results from tests of controls and substantive tests of transactions might impact the auditor’s planned reliance on tests of details of balances. The following questions concern analytical procedures in the sales and collection cycle. Choose the best response. a. As a result of analytical procedures, the auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should
(1) express a qualified opinion due to inability of the client company to continue as a going concern.
(2) evaluate management’s performance in causing this decline.
(3) require footnote disclosure.
(4) consider the possibility of a misstatement in the financial statements.
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