Final answer:
Analytical procedures are most effective at detecting errors in financial statements by comparing financial data and identifying irregularities. They can also raise red flags for possible fraudulent activities but are not primarily designed for detecting business inefficiencies or operational risks.
Step-by-step explanation:
Analytical procedures are most likely to detect errors in financial statements. These procedures involve evaluating financial information by studying plausible relationships among both financial and non-financial data. Analytical procedures are used to identify irregularities in the object being measured and any other factors that might affect the outcome, which can range from honest errors to intentional misstatements.
While analytical procedures can sometimes identify signs of fraudulent activities, they are not exclusively designed for this purpose. Instead, they serve as a first step in identifying areas that require further investigation. For detecting inefficiencies in business processes or operational risks, other types of analysis would typically be more appropriate.