Question

Which of the following activities is not a step in the process for using analytical procedures?

a. Define when the difference between the auditor's expectation and the client's balance would be considered significant.

b. Compute the difference between the auditor's expectation and the client's balance.

c. Perform appropriate follow-up on all material and immaterial differences.

d. Develop an expectation."

Answer 1

Option (c) 'Perform appropriate follow-up on all material and immaterial differences' is not a step in the process of using analytical procedures, as immaterial differences typically do not warrant follow-up.

Step-by-step explanation:

The question relates to the steps in the process of using analytical procedures during an audit. Among the options given, the activity that is not a step in the process for using analytical procedures is:

• c. Perform appropriate follow-up on all material and immaterial differences.

Analytical procedures typically include:

1. Defining the significance threshold (option a).
2. Computing differences between the auditor's expectations and the client's balance (option b).
3. Developing an expectation based on relevant data (option d).

Follow-ups are generally conducted on material differences rather than immaterial ones, as immaterial differences are not expected to impact the overall financial statements significantly.