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Gross Margin AnalyticExpected Cost of Sales from Prior Margin

What do the numbers come to once the work is shown?

Expected cost of sales from current revenue and the prior gross margin, the difference to recorded cost of sales and the change in margin points.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Difference (recorded less expected)
$260,400
Recorded cost of sales less the expectation
Expected cost of sales
$9,609,600
Recorded amount
$9,870,000
Drawn to one scale
Expected cost of sales$9,609,600
Recorded amount$9,870,000
Difference (recorded less expected)$260,400
All results
MeasureResult
Expected cost of sales$9,609,600
Recorded amount$9,870,000
Difference (recorded less expected)$260,400
Difference as % of expected2.71%
InvestigateYes: difference exceeds the threshold
Current gross margin36.73%
Change in margin (points)-1.67
How this was worked out
Work shownrecomputed as you type
Expected cost of sales = revenue x (1 - prior gross margin)
Current gross margin = (revenue - cost of sales) / revenue
Change = current margin - prior margin, in points

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Expected cost of sales = revenue x (1 - prior gross margin)
  • Current gross margin = (revenue - cost of sales) / revenue
  • Change = current margin - prior margin, in points

How it works

AU-C 520 paragraph .A13 notes that comparing gross margin percentages gives less persuasive evidence than a model built from verified inputs, but it gives useful corroboration combined with other procedures. Paragraph .A22 notes gross margin is usually steadier than discretionary costs, which makes it a reasonable basis for an expectation.

A margin shift has to be explained by price, cost or mix changes you can corroborate. Inventory cutoff errors, missed write-downs and capitalized costs that belong in expense all show up here.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

Should I use a multi-year average margin?

Use the margin that best predicts this year. A stable business supports an average; a changed business needs a budget or a segment build.

Does this test revenue or cost of sales?

It tests the relationship. Pair it with a revenue test so one side is anchored.

What is a margin point?

One percentage point of gross margin. A 1 point change on $10 million of revenue is $100,000 of cost of sales.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

Related audit calculators

CalculatorThreshold for Investigation Calculator for Substantive Analytics (AU-C 520)Build the acceptable difference from your chosen share of performance materiality and of the balance, then flag the recorded amount against your expectation.CalculatorRegression Expectation Calculator: Six-Period Trend with Prediction IntervalLeast-squares line from six periods of driver and balance, the expected balance for the current driver, and a 90% or 95% prediction interval.CalculatorCommission Expense Recompute: Base Rate and Accelerator Above QuotaRecompute commission on sales at a base rate up to quota and an accelerator rate above it, and compare with the recorded commission.
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