Question

Which of the following is a correct statement regarding analytical procedures?

A) A major strength in using industry ratios for auditing is the difference between the nature of the client's financial information and that of the firms making up the industry totals.
B) Common-size financial statements display all items as a percentage change from a base year.
C) Auditors should investigate the most significant differences between budgeted and actual results.
D) In order to look for a misstatement in the allowance for bad debts, the auditor should divide gross sales by sales returns and allowances.

Answer 1

The correct statement regarding analytical procedures is that auditors should investigate the most significant differences between budgeted and actual results.

Step-by-step explanation:

The correct statement regarding analytical procedures is Option C) Auditors should investigate the most significant differences between budgeted and actual results.

Analytical procedures are used by auditors to evaluate financial information and assess the reasonableness of account balances or financial statements. These procedures involve comparing financial data and ratios to identify any significant differences or anomalies that may indicate errors or potential misstatements.

As part of these procedures, auditors compare budgeted or forecasted values with actual results to identify any significant differences. Investigating the most significant differences allows auditors to understand the underlying causes of those differences and assess the impact on the financial statements.