Your comparison of the gross margin percentage for Jones Drugs Ltd for the years 20X1 to 20X4
Question:
Your comparison of the gross margin percentage for Jones Drugs Ltd for the years 20X1 to 20X4 indicates a significant decline. This is shown by the following information:
A discussion with Marilyn Adams, the financial controller, brings to light two possible explanations. She informs you that the industry gross profit percentage in the retail drug industry declined fairly steadily for three years, which accounts for part of the decline. A second factor was the declining percentage of the total volume resulting from the pharmacy part of the business. The pharmacy sales represent the most profitable portion of the business, yet the competition from discount chemists prevents it from expanding as fast as non-drug items such as magazines, candy, and many other items sold. Adams feels strongly that these two factors are the cause of the decline.
The following additional information is obtained from independent sources and the client's records as a means of investigating the financial controller's explanations:
REQUIRED
a. Evaluate the explanation provided by Adams. Show calculations to support your conclusions.
b. Which specific aspects of the client's financial statements require intensive investigation in this audit?
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler