Comparing the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable during an audit would be a type of:
A)Test of transactions.
B)Analytical procedure.
C)Test of controls.
D)Test of details.

Question

Quizplus · Accepted Answer

This would be a type of analytical procedure, which involves comparing financial information to prior periods or industry averages to identify unusual fluctuations or trends. It is used to evaluate the reasonableness of account balances and to identify potential risks or areas for further audit testing.

Comparing the Current-Year Gross Margin with the Prior-Year Gross Margin