Final answer:
Before auditors use substantive analytical procedures, they must consider the availability and reliability of data to develop their expectations to ensure the accuracy of their analyses and to identify potential errors or fraud in the financial statements. Therefore, the correct option is 2.
Step-by-step explanation:
Before auditors can use substantive analytical procedures, they must perform certain steps to ensure the reliability and relevance of their work. In particular, according to the context provided by the question, option 2 is the most accurate: they must consider the availability and reliability of data to be used to develop their expectation. This implies auditors need to have a strong basis for their projected figures, ratios, or trends before they perform analytical procedures to test for material misstatements in the financial statements. Auditors must have a deep understanding of the business and industry, as well as an awareness of any guidelines for proper conduct, including those from associations and federal agencies. Moreover, auditors often have an initial hypothesis or expectation based on their understanding of the business, prior year figures, or budgeted amounts. Such expectations are essential because they enable auditors to identify any significant deviations that could indicate errors or fraud. Additionally, knowledge of basic statistical procedures is crucial for auditors to recognize proper data analysis, further contributing to the reliability of their substantive analytical procedures.