Final answer:
Analytical procedures are indeed used to assess the year-end balances for financial instruments. They involve comparing and analyzing financial data to spot trends, irregularities, and to measure financial health, which is useful in creating analytical reports or making informed decisions.
Step-by-step explanation:
True, analytical procedures can indeed be used to assess year-end balances for financial instruments. These procedures involve the analysis and comparison of financial data, allowing auditors and accountants to understand and explain changes or inconsistencies in financial statement information. For example, when evaluating the year-end balances of financial instruments, analysts may review trends over several periods, compare financial data against industry standards, or check ratios that indicate financial health, like liquidity ratios or debt-to-equity ratios.
During the assessment, it is important to consider the reasonableness of the balances and transactions by comparing them with relevant information such as historical performance and future expectations. These comparisons may highlight any significant or unexpected fluctuations, shedding light on areas that may require further investigation or justification.
In the context of preparing an analytical report for a portfolio, responding to questions through a cover letter or journal entry could include reflections on findings from the analysis, insights into trends in the current account balance or the merchandise trade balance, and considerations on how the results impact financial decision-making.