Question

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

A) If an auditor identifies a possible misstatement in sales using analytical procedures, accounts payable will be the likely offsetting misstatement.
B) Auditors should also compare the results of their analytical procedures to budgets and industry trends.
C) If sales are overstated, the income statement will be incorrect, but the balance sheet will be correct.
D) If an analytical procedure uncovers an unusual fluctuation, the auditor must assume fraud is involved.

Answer 1

The correct statement is that auditors should compare the results of their analytical procedures to budgets and industry trends, using these procedures to assess the risk of misstatement. The correct option is B.

Step-by-step explanation:

The correct statement regarding analytical procedures is: Auditors should also compare the results of their analytical procedures to budgets and industry trends. Auditors use these procedures as a part of their risk assessment to identify the likelihood of material misstatement in the financial statements.

An auditor would not automatically assume a possible misstatement in sales would mean there is an offsetting misstatement in accounts payable, nor would they assume that fraud is involved if an unusual fluctuation is noticed; further investigation would be necessary.

Additionally, if sales are overstated, it is not correct that only the income statement would be incorrect; the balance sheet could also be affected due to the interconnected nature of financial statements.

Hence, Option B is correct.