An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the risk assessment phase of the audit by the use of:
A) Tests of transactions and balances.
B) An assessment of internal control.
C) An audit time budget.
D) Analytical procedures.

Question

Quizplus · Accepted Answer

Abnormal fluctuations in gross profit would be identified using analytical procedures in the risk assessment phase of the audit. Analytical procedures involve comparing financial information with expectations developed by the auditor, and identifying significant fluctuations or relationships that need further investigation. Tests of transactions and balances, assessment of internal controls, and audit time budgets may be used in other phases of the audit, but would not specifically identify abnormal fluctuations in gross profit as a risk.

An Abnormal Fluctuation in Gross Profit That Might Suggest the Need