When analyzing a client's performance measurement system,
A) ratio analysis and benchmarking against key competitors are utilized.
B) only income statement numbers are used.
C) inherent risk of financial statement misstatements may be decreased if the performance measurement system encourages aggressive accounting.
D) the auditor is likely to decrease the extent of testing if the client has set unreasonable objectives.

Question

Quizplus · Accepted Answer

When analyzing a client's performance measurement system, ratio analysis and benchmarking against key competitors are utilized to assess the effectiveness of the system. This helps in identifying areas of improvement and making informed decisions.

Options B and C are incorrect as the income statement numbers alone cannot provide a complete picture of a company's performance, and encouraging aggressive accounting practices may increase the risk of financial misstatements.

Option D is also incorrect as the auditor cannot compromise the extent of testing based on the client's objectives, as this can lead to reduced reliability of financial statements.

When Analyzing a Client's Performance Measurement System