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.Auditors most likely could have detected this irregularity by
A)Tracing a sample of journal entries to the general ledger.
B)Evaluating the effectiveness of the internal control policies and procedures.
C)Investigating the reconciliations between controlling accounts and subsidiary records.
D)Performing analytical procedures designed to disclose differences from expectations.

Question

Quizplus · Accepted Answer

Performing analytical procedures designed to disclose differences from expectations would have allowed auditors to identify any irregularities in the revenue and expense accounts that deviated from the expected amounts. This could have prompted auditors to investigate the specific journal entries and ultimately detect the misstatements in the income statements. Tracing journal entries to the general ledger, evaluating the effectiveness of internal controls, and investigating reconciliations between controlling accounts and subsidiary records would not directly address the irregularity in the expense and revenue accounts recorded in the journal entries.

An Entity's Income Statements Were Misstated Due to the Recording