Audit Planning: Ratio Analysis

Li Chen has calculated profitability ratios using data extracted from his client's pre-audit trial balance. He also has the values for the same ratios for the preceding two years (using audited figures).

Ratio	2016	2015	2014
Gross profit margin	0.45	0.35	0.40
Profit margin	0.09	0.15	0.20

Li is a little confused because the profit margin shows declining profitability, but the gross profit margin has improved in the current year and is higher in 2016 than in the previous two years.

Required

What are some possible explanations for the patterns observed in the gross profit and profit margins over the past three years?

Based on these possible explanations, which accounts may require special attention in this years audit? Explain.