Analytic Procedures

Construction Industry Resources, Inc.

X1

X2

X3

X4

X5

Building supply revenues

90,100

99,380

117,468

137,085

160,800

Lumber brokerage revenues

0

0

45,021

63,480

90,141

90,100

99,380

162,489

200,565

250,941

Inventory turn days
   Building supplies

32

34

31

33

27

   Lumber brokerage

0

0

7

6

6

Gross margin
   Building supplies

20.10%

18.50%

18.60%

19.10%

18.00%

   Lumber brokerage

3.90%

4.10%

4.20%

In audit planning the audit of Construction Industry Resources,

Inc., a building supply company. You have completed analytic procedures relevant to purchases and inventory. The results of these procedures are included in Figure 8-13.
Required
Analytical procedures show that inventory turnover decreased from 31–34 days to 27 days,
and gross margins declined to the lowest level in five years. What might this indicate about
the risk of misstatement with respect to inventory and inventory purchases?