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Auditing - Analytical Procedure
Auditing
Any one could you please help me find the answer for the below MCQ with reason
Answers (4)
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Liju K NairThank You for the reply. Answer d is also right ? Why answer d is not correct this in situation. Hope you can provide more insight on this. Thanks for the time 🙏
Question is on analytical procedure. Answer should be specific to that. a and b both are audit procedures but not substantive analytical procedures. SA 520, gives the understanding of applying analytical procedure, based on that c is appropriate in this situation.
answer is c. Analytical procedure is establishing relationship between financial and non financial information and check if there is any significant fluctuation with the reported amount and that predicted by the auditor. Here, he can perform analytical procedure by calculating monthly rental (120000*12). the reported amount to reasonably match with the same. otherwise, it could be an indicator of overstatement or understatement of expense, for which he could further look into for detail.
Pradnya Bajaj
answer is c. Analytical procedure is establishing relationship between financial and non financial information and check if there is any significant fluctuation with the reported amount and that predicted by the auditor. Here, he can perform analytical procedure by calculating monthly rental (120000*12). the reported amount to reasonably match with the same. otherwise, it could be an indicator of overstatement or understatement of expense, for which he could further look into for detail.
Thank You for the reply. Answer d is also right ? Why answer d is not correct this in situation. Hope you can provide more insight on this. Thanks for the time 🙏
Pradnya Bajaj
answer is c. Analytical procedure is establishing relationship between financial and non financial information and check if there is any significant fluctuation with the reported amount and that predicted by the auditor. Here, he can perform analytical procedure by calculating monthly rental (120000*12). the reported amount to reasonably match with the same. otherwise, it could be an indicator of overstatement or understatement of expense, for which he could further look into for detail.
In my opinion , answer is b. As per SA 520, Analytical procedure means evaluation of financial information through analysis of meaningful relationship among both financial and non financial data. By analyzing each of the options given, option (a) is not suitable/not correct because inspecting every single rent invoice implies test of details, not SAP, Analytical procedure makes work more simpler than test of details. Option (c) is also not suitable because just taking one invoice and verifying completely that invoice and then just multiplying that one invoice amount with no. of months do not come under Analytical procedure( there must be some relationship with others like doing trend analysis, comparing data with industry averages, etc.). Finally, option (b) is suitable, because auditor comparing the actual rental expense with that of another entity having comparable characteristics regarding building - and also it is one of the major types of Analytical Procedures I.e., Comparison of client data with industry data / with other entities of comparable size in the same industry or area in which entity exists. If any differences, discussions can be done with me. So that the right option we can get.
