Question

Which of the following comparisons would be most useful to an auditor in evaluating the overall financial results of an entity's operations?

(a) Prior-year accounts payable to current-year accounts payable.
(b) Prior-year payroll expense to budgeted current-year payroll expense.
(c) Current-year revenue to budgeted current-year revenue.
(d) Current-year warranty expense to current-year contingent liabilities.

Answer 1

The best comparison for an auditor is current-year revenue to budgeted current-year revenue, as it evaluates financial performance against targets.

Step-by-step explanation:

The question asks which comparison would be most useful to an auditor when evaluating the overall financial results of an entity's operations. The most useful comparison for an auditor would be option (c), current-year revenue to budgeted current-year revenue. This comparison provides insight into how the entity is performing against its own financial goals and can indicate whether the entity is on track to meet its projected financial targets for the year.

Comparing actual revenue to budgeted figures is a common practice in financial analysis as it helps in assessing the accuracy of budgeting processes, the effectiveness of the entity's strategies, and can flag potential issues that might need addressing. It also ties directly into evaluating an entity's annual budget deficit or surplus, which reflects the difference between tax revenue collected and spending for the fiscal year.