ACCT 561 Week 4

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 analytical procedures 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 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 activities is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement?

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

Analytical procedures performed in the final review stage of an audit generally would include

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

Which of the following ratios would an engagement partner most likely consider in the overall review stage of an audit?

Cost of goods sold/average inventory

Analytical procedures used in the planning phase of an audit should focus on

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

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

In the planning stage: Yes As a substantive test: No In the review stage: Yes

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

Interest expense

Which of the following ratios would an engagement partner most likely calculate when reviewing the balance sheet in the overall review stage of an audit?

Total debt/total assets

When performing analytical procedures in the planning stage, the auditor most likely would develop expectations by reviewing which of the following sources of information?

Unaudited information from internal quarterly reports.

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

There was an improper cutoff of sales at the end of the year.

To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by

A manager or partner who has a comprehensive knowledge of the client's business and industry.

Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that

Additional tests of detail are required.

An auditor's analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused by

An error in recording amortization of the excess of the investor's cost over the investment's underlying book value.

A primary objective of analytical procedures used in the final review stage of an audit is to

Assist the auditor in evaluating the overall financial statement presentation.

An auditor most likely would apply analytical procedures in the overall review stage of an audit to

Determine whether additional audit evidence may be needed.

Analytical procedures used in planning an audit should focus on

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

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?

Identifying reasonable explanations for unexpected differences before talking to client management.

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

Operating expense transactions

An auditor's decision whether to apply analytical procedures as substantive tests 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 an error rate by comparing the results of a statistical sample with the actual population characteristics.

Which of the following is an analytical procedure that an auditor most likely would perform during the final review stage of an audit?

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

A test of a payroll system involved comparing an individual's number of overtime hours a week with an average of weekly overtime during a similar period in a prior year and evaluating the results. This is an example of what type of test?

Reasonableness test

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

Relationships involving income statement accounts.

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

Relative effectiveness and efficiency of the tests.

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

Square footage of selling space.

An auditor compares current annual 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 tolls in the current year.

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor?

The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.

An auditor's analytical procedures performed during the overall review stage indicated that the client's accounts receivable had doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations most likely would satisfy the auditor?

The client opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.

The accounts receivable turnover ratio increased significantly over a two year period. This trend could indicate that

The company is more aggressively collecting customer accounts

Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses?

The current year's payroll expense with the prior year's payroll expense.

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 disclosure unexpected differences.

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.

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

Uses a standard cost system that procedures variance reports.

Which of the following factors would most likely influence an auditor's consideration of the reliability of data when performing analytical procedures?

Whether the data were developed under a system with adequate controls.