The document discusses various analytical procedures used by auditors to detect potential issues in a company's financial statements. It provides examples of relationships and accounts that could be analyzed, as well as possible issues that may be uncovered through certain analytical procedures. Specifically, it notes that comparing revenues and expenses to the prior year could reveal an inadequate provision for uncollectible accounts due to worsening economic conditions. It also discusses how a decrease in the ratio of gross profit to sales may suggest unrecorded sales. Finally, it states that a decrease in the inventory turnover rate from 2014 to 2015 suggests the possible existence of obsolete merchandise.
The document discusses various analytical procedures used by auditors to detect potential issues in a company's financial statements. It provides examples of relationships and accounts that could be analyzed, as well as possible issues that may be uncovered through certain analytical procedures. Specifically, it notes that comparing revenues and expenses to the prior year could reveal an inadequate provision for uncollectible accounts due to worsening economic conditions. It also discusses how a decrease in the ratio of gross profit to sales may suggest unrecorded sales. Finally, it states that a decrease in the inventory turnover rate from 2014 to 2015 suggests the possible existence of obsolete merchandise.
The document discusses various analytical procedures used by auditors to detect potential issues in a company's financial statements. It provides examples of relationships and accounts that could be analyzed, as well as possible issues that may be uncovered through certain analytical procedures. Specifically, it notes that comparing revenues and expenses to the prior year could reveal an inadequate provision for uncollectible accounts due to worsening economic conditions. It also discusses how a decrease in the ratio of gross profit to sales may suggest unrecorded sales. Finally, it states that a decrease in the inventory turnover rate from 2014 to 2015 suggests the possible existence of obsolete merchandise.
1. Of the following procedures, which does not produce company late in 2014 analytical evidence? d. Fictitious sales in 2015 a. Compare revenue, cost of sales, and gross profit with 9. Which of the following would not be classified as an the prior year and investigate significant variations analytical procedure? b. Examine monthly performance reports and investigate a. Benchmarking the company’s profitability ratios significant revenue and expense variances against others in the industry c. Confirm customers account receivable and clear all b. Variance analysis of actual revenue versus budgeted material exceptions. amounts for production d. Compare sales trends and profit margins with industry c. Reperforming the client’s depreciation expense using average and investigate significant differences the client’s accounting policies for capital expenditures made during the year 2. Which of the following comparisons is most useful to an d. Reconciling fixed assets disposition with the fixed asset auditor in evaluating the results of an entity’s operations? ledger. a. Prior year accounts payable to current year accounts payable 10. An auditor compares this year’s revenues and expenses with b. Prior year payroll expense to budgeted current year those of the prior year and investigates all changes exceeding payroll expense 10%. By this procedure the auditor is most likely to learn c. Current year revenue to budgeted current year revenue that d. Current year warranty expense to current year a. An increase in property tax rates has not been contingent liabilities. recognized in the client’s accrual b. This year’s provision for uncollectible account is 3. Which of the following analytical procedures should be inadequate because of worsening economic conditions applied to the income statement? c. December payroll taxes were not paid a. Select sales and expense items and trace amounts to d. The client changed its capitalization policy for small related supporting documents tools during the year. b. Ascertain that the new income amount in the statement of cash flows agrees with the net income amount in the income statements c. Obtain from the client representatives, the beginning and ending inventory amounts that were used to determine costs of sales d. Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.
4. Which of the following tends to be most predictable for the
purpose of analytical procedures applied as substantive test? a. Relationships involving balance sheet accounts b. Transactions subject to management discretion c. Relationships involving income statement accounts. d. Data subject to audit testing in the prior year
5. 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? a. Accounts payable b. Advertising expense c. Accounts receivable d. Interest expense.
6. Auditors sometimes use comparison of ratios as audit
evidence. For example, an unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities? a. Unrecorded purchases b. Unrecorded sales. c. Merchandise purchase being charged to operating expense d. Fictitious sales
7. Which result of an analytical procedure suggests the
existence of obsolete merchandise? a. Decrease in the inventory turnover rate. b. Decrease in the ratio of gross profit to sales c. Decrease in the ratio of inventory to accounts payable d. Decrease in the ratio of inventory to accounts receivable
8. If accounts receivable turned over 8 times in 2014 as
compared to only 6 times in 2015, it is possible that there were a. Unrecorded credit sales in 2015. b. Unrecorded cash receipts in 2014