Question

Which of the following statements regarding performance measurement is correct?

1) The key performance indicators used by a client to monitor and assess its own performance do not provide auditors with insights into the accounts their client focuses on when compiling its financial statements.
2) It is appropriate to assume all clients use the same KPIs.
3) The key performance indicators used by a client to monitor and assess its own performance do not provide auditors with insights into which accounts are potentially at risk of material misstatement.
4) It is inappropriate to assume a client will use the same KPIs every year.

Answer 1

The correct statement is that it is inappropriate to assume a client will use the same KPIs every year, as businesses might change their KPIs with evolving objectives. Understanding a client's KPIs can provide auditors with insights into areas of potential risk in the financial statements.

Step-by-step explanation:

The correct statement regarding performance measurement is: It is inappropriate to assume a client will use the same KPIs every year. Clients may change their key performance indicators (KPIs) as their business objectives and strategies evolve. Auditors can gain valuable insights into potential areas of risk in financial statements by understanding the KPIs a client uses. These indicators can highlight areas of the business that are of particular interest or concern to management, suggesting where there might be greater incentive to misstate figures. Additionally, the client's KPIs could direct auditors to specific accounts that may require more scrutiny or that are perceived as critical by the client.