Adv Audit Chapter 3 Section 5

An auditor is reviewing changes in sales for a product. Sales volume (quantity) declined 10% while sales price increased by 25% for the product. Prior year sales were $75000. The auditor expects this year's sales for the product to be approximately...

$84,375 = 75000 - 7500 + 16875 = 7500 : .1 * 75000 : 16875 = 67500 * .25???

Analytical procedures performed to assist in forming an overall conclusion suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that...

Additional audit procedures are required

An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed?

Analytical procedures

Auditing standards require that sufficient appropriate evidence be obtained by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidence required may be obtained in part through...

Analytical procedures

Which of the following is ordinarily designed to detect possible material dollar misstatements in the financial statements?

Analytical procedures

Which of the following statements about analytical procedures is true?

Analytical procedures alone may provide the appropriate level of assurance for some assertions

For all audits of financial statements made in accordance with auditing standards the use of analytical procedures is required to some extent...

As Risk Assessment Procedures - YES As Substantive Procedures - NO To Assist in Forming an Overall Conclusion - YES

An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the...

Auditor's determination about whether audit risk can be sufficiently reduced

Which of the following procedures would a CPA most likely perform in the planning phase of a financial statement audit?

Compare financial information with non financial operating data

Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit?

Compare recorded financial information with anticipated results from budgets and forecasts

Which of the following is an analytical procedure that an auditor most likely would perform when planning an audit?

Comparing current-year balances to budgeted balances

Which of the following is an analytical procedure?

Comparing current-year balances to prior-year balances

Which of the following analytical procedures most likely would be used during the planning stage of an audit?

Comparing current-year to prior-year sales volumes

Which of the following would be considered an analytical procedure?

Comparing inventory balances to recent sales activities

Which of the following audit activities is an analytical procedure used to form an overall conclusion to ensure that the financial statements are free from material misstatement?

Comparing the current year's financial statements with those of the prior year

Which of the following is an analytical procedure that an auditor most likely would perform when planning an audit?

Comparing the current-year account balances for conformity with predictable patterns

Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

Comparing the financial statements with anticipated results

Before performing substantive analytical procedures at an interim date prior to the balance sheet date; an auditor should...

Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable

Analytical procedures used to form an overall conclusion of an audit generally would include...

Considering the adequacy of the evidence gathered in response to unexpected balances identified in planning

Analytical procedures used to form an overall audit conclusion generally include...

Considering unusual or unexpected account balances that were not previously identified

Which result of an analytical procedure suggests the existence of obsolete merchandise?

Decrease in the inventory turnover rate

An auditor most likely will use analytical procedures to form an overall conclusion to...

Determine whether additional audit evidence may be needed

A primary objective of analytical procedures used to form an overall conclusion is to...

Determine whether the financial statements are consistent with the auditor's understanding

Which of the following steps should be performed first in applying analytical procedures?

Develop an expectation of a balance or ratio by using relationships that are expected to exist

Which of the following would be considered an analytical procedure?

Developing the current year's expected net sales based on the entity's sales trend of prior years

Which of the following would be least likely to be comparable between similar corporations in the same industry line of business?

Earnings per share

The objective of analytical procedures performed as risk assessment procedures is to...

Enhance the auditor's understanding of the client's business

Analytical procedures used in planning an audit should focus on...

Enhancing the auditor's understanding of the client's business

Analytical procedures used as risk assessment procedures should focus on...

Enhancing the auditor's understanding of the entity and its environment

Analytical procedures used as risk assessment procedures should focus on...

Enhancing the auditor's understanding of the transactions and events that have occurred since the last audit

An auditor discovers that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This trend may indicate that...

Fictitious credit sales have been recorded during the year

If accounts receivable turned over 7.1 times in Year 1 as compared with only 5.6 times in Year 2 it is possible that there were...

Fictitious sales in Year 2

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Interest expense

Which of the following is the most likely cause of the decrease in accounts receivable turnover?

Liberalization of credit policy

Which of the following ratios would be the least useful in reviewing the overall profitability of a manufacturing company?

Net income to working capital

Analytical procedures are most appropriate when testing which of the following types of transactions?

Operating expense transactions

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Payroll expense

Analytical procedures reveal significant unexpected differences between recorded amounts and the expectations developed by the auditor. If management is unable to provide an acceptable explanation the auditor should...

Perform additional audit procedures to investigate the matter further

An auditor may be able to reduce audit risk to an acceptably low level for some relevant assertions by...

Performing analytical procedures

Which of the following procedures would an auditor most likely use to identify unusual year-end transactions?

Performing analytical procedures

An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected this irregularity by...

Performing analytical procedures designed to disclose differences from expectations

Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

Performing analytical procedures to identify areas that may represent specific risks

A basic premise underlying analytical procedures is that...

Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary

An auditor's decision whether to apply analytical procedures as substantive procedures usually is determined by the...

Precision and reliability of the data used to develop expectations

Which of the following would not be considered an analytical procedure?

Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics

Which of the following would not be considered an analytical procedure?

Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonissuer?

Ratio analysis

Which of the following is an analytical procedure that an auditor most likely uses to form an overall conclusion?

Reading the financial statements and considering whether there are any unusual or unexpected balances that were not previously identified

Which of the following items tend to be the most predictable for purposes of analytical procedures applied as substantive procedures?

Relationships involving income statement accounts

Which of the following statements is correct regarding the predictability of analytical procedures in a financial statement audit?

Relationships involving income statement accounts tend to be more predictable than relationships involving only balance sheet accounts

For all audits of financial statements made in accordance with generally accepted auditing standards the auditor should apply analytical procedures to some extent as...

Risk Assessment Procedures - YES Substantive Procedures - NO In the Review Stage - YES

Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?

Square footage of the selling space

Analytical procedures can best be categorized as...

Substantive procedures

An auditor compares this year's revenues and expenses with those of the prior year and investigates all changes exceeding 10%. By this procedure the auditor would be most likely to learn that...

The client changed its capitalization policy for small tools this year

Which of the following most likely would cause an auditor to consider whether a client's financial statements contain material misstatements?

The results of an analytical procedure disclose unexpected differences

Which of the following statements is correct concerning analytical procedures used in planning an audit engagement?

They usually use financial and nonfinancial data aggregated at a high level

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except...

Tracing transactions through the system to determine whether procedures are being applied as prescribed

An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that...

Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities

One reason the independent auditor applies analytical procedures with regard to the client's operations is to identify...

Unusual transactions

The objective of performing analytical procedures in planning an audit is to identify the existence of...

Unusual transactions and events

An auditor's analytical procedures most likely would be facilitated if the entity...

Uses a standard cost system that produces variance reports

Which of the following is the most reliable analytical approach to verification of the year-end financial statement balances of a wholesale business?

Verify commission expense by multiplying sales revenue by the company's standard commission rate

Which of the following statements is true concerning analytical procedures?

When expectations are more precise, significant variances are more likely to be due to misstatements

Which of the following factors has the least influence on an auditor's consideration of the reliability of data for purposes of analytical procedures?

Whether the data were processed in a computer system or in a manual accounting system

After audit procedures are completed a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This second review usually focuses on...

Whether the financial statements are consistent with the auditor's understanding of the entity

Auditors sometimes use comparison of ratios as audit evidence. For example

an unexplained decrease in the ratio of gross profit to sales suggests which of the following possibilities?, Unrecorded sales

When performing analytical procedures as risk assessment procedures

the auditor most likely would develop expectations by reviewing which of the following sources of information?, Unaudited information from internal quarterly reports

If not already done to form an overall conclusion

the auditor should perform analytical procedures relating to which of the following transaction cycles?, Revenue: An auditor's preliminary analysis of accounts receivable turnover revealed the following rates over these accounting periods: Year 3 - 4.3 Year 2 - 6.2 Year 1 - 7.3

In an audit of financial statements for which an auditor's assessment of risk is judgmental and may not be sufficiently precise to identify all risks of material misstatement

the auditor should take which of the following actions?, Perform substantive procedures for all relevant assertions related to each material class of transactions

As a result of analytical procedures

the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should..., Consider the possibility of a misstatement in the financial statements

An auditor who performed analytical procedures that compared current-year financial information to the comparable prior period noted a significant increase in net income. Given this result

which of the following expectations of recorded amounts would be unreasonable?, A decrease in retained earnings

The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used

which of the following should the auditor consider?, The nature of the assertion tested