Question

Which of the following statements is not correct?

A) Analytical procedures are used to isolate accounts or transactions that should be investigated more extensively.
B) For certain immaterial accounts, analytical procedures may be the only evidence needed.
C) In some instances, other types of evidence may be reduced when analytical procedures indicate that an account balance appears reasonable.
D) Analytical procedures use supporting documentation to determine which account balances need additional detailed procedures

Answer 1

The incorrect statement is D) Analytical procedures use supporting documentation to determine which account balances need additional detailed procedures. Analytical procedures involve analyzing financial data for unusual patterns, not directly examining supporting documentation, which is what may follow if risks are identified.

Step-by-step explanation:

The statement that is not correct is: D) Analytical procedures use supporting documentation to determine which account balances need additional detailed procedures. Analytical procedures primarily involve analysis of financial information through ratios, trends, and comparisons, rather than direct examination of supporting documentation. Instead, analytical procedures help to identify risk areas that might require further investigation, which may include examining supporting documents. The purpose of analytical procedures in auditing is to provide a better understanding of the financial information and to identify any unusual transactions or patterns that may indicate a risk of material misstatement.

Statements A, B, and C are correct as:

• Analytical procedures are indeed used to isolate accounts or transactions that should be investigated more extensively.
• For immaterial accounts, analytical procedures might be enough without further detailed evidence.
• When analytical procedures suggest an account balance seems reasonable, it might lead to the reduction of other types of evidence gathering.