Question 1

One purpose of performing preliminary analytical procedures in the planning phase of an audit is to help the auditor make a preliminary assessment of control risk.

Accepted Answer

The primary purpose of performing preliminary analytical procedures in the planning phase of an audit is to gain an understanding of the client's business and identify areas of potential risk. While this information can be used to inform the auditor's assessment of control risk, it is not the primary purpose of performing preliminary analytical procedures.

Question 2

When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit. The auditor should:

Accepted Answer

A significant decline in gross profit percentage warrants investigating the possibility of errors in the computation of cost of goods sold. This could be a red flag for possible fraud or error in financial statements. Therefore, the auditor should investigate the issue further. Choice B is not within the auditor's responsibilities, and choice C and D are premature at this stage.

Question 3

Which is a liquidity activity ratio?

Accepted Answer

Inventory turnover is a liquidity activity ratio that measures how quickly a company can sell its inventory and convert it into cash. It is an important metric for assessing a company's efficiency in managing its inventory and generating revenue. A high inventory turnover ratio indicates that a company is selling its inventory quickly and efficiently, while a low ratio may indicate poor inventory management or slow sales. The other options listed (profit margin, return on assets, and times interest earned) are profitability ratios or solvency ratios, which measure a company's profitability and ability to meet its debt obligations, respectively.

Question 4

When are auditors likely to encounter judgment problems in the use of analytical procedures?

Accepted Answer

All of the mentioned factors (reliance on management's explanations, influence of unaudited balances, failure to consider patterns) can lead to judgment problems in the use of analytical procedures. Therefore, the auditor is likely to encounter judgment problems in each of the above instances.

Question 5

Which of the following statements is not correct?

Accepted Answer

Analytical procedures used in the completion phase are primarily aimed at assessing going concern and only secondarily aimed at directing the auditor's attention to areas that may contain possible misstatements.

Question 6

Which of the following statements is not correct with respect to analytical procedures?

Accepted Answer

Analytical procedures must be performed at the planning and overall review stages of the audit, but not necessarily throughout the entire audit.

Question 7

Which of the following is most correct with respect to the use of analytical procedures?

Accepted Answer

The answer of Which of the following is most correct...

Question 8

Auditors routinely conduct analytical procedures in the planning, testing, and completion phases of the audit. Identify the primary and secondary purposes of performing analytical procedures in each phase of the audit.

Accepted Answer

The answer of Auditors routinely conduct analytical procedures in the...

Question 9

The major concern when using nonfinancial data in analytical procedures is the:

Accepted Answer

The accuracy of nonfinancial data is the major concern when using it in analytical procedures. Nonfinancial data is usually subjective and prone to errors, which makes it essential to verify the accuracy of the data before using it for analysis. Without accurate nonfinancial data, the results of analytical procedures may be misleading or incorrect.

Question 10

Whenever an auditor compares client data to client-prepared budgets, there are two special concerns. Indicate if the two items below are concerns.

Accepted Answer

The answer of Whenever an auditor compares client data to...

Question 11

Define business risk. List several factors that may impact the auditor's assessment of business risk.

Accepted Answer

The answer of Define business risk. List several factors that...

Question 12

Discuss the four primary purposes of analytical procedures performed during the planning phase of an audit.

Accepted Answer

The answer of Discuss the four primary purposes of analytical...

Question 13

Which of the following would not be classified as an analytical procedure?

Accepted Answer

Reconciling fixed asset dispositions with the fixed asset ledger is a test of details procedure rather than an analytical procedure. Benchmarking, variance analysis, and reperforming calculations using the client's accounting policies are examples of analytical procedures.

Question 14

Which of the following best describes the first standard of field work?

Accepted Answer

The answer of Which of the following best describes the...

Question 15

During audit planning, the auditor uses analytical procedures primarily to:

Accepted Answer

Analytical procedures during audit planning are used to gain an understanding of the client's business and industry, and to identify areas that may require further investigation due to potential misstatements.

Quiz 8: Audit Planning and Analytical Procedures