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

Option B) Auditors should also compare the results of their analytical procedures to budgets and industry trends is a correct statement regarding analytical procedures.

Step-by-step explanation:

Option B) Auditors should also compare the results of their analytical procedures to budgets and industry trends is a correct statement regarding analytical procedures.

Analytical procedures involve evaluating financial information using different procedures and techniques such as comparing current year balances to prior year balances, comparing actual results to budgeted amounts, and comparing industry trends with the company's performance. By comparing the results of analytical procedures to budgets and industry trends, auditors can identify potential discrepancies or abnormalities that may indicate errors or fraud.

For example, if a company's sales have significantly increased compared to industry trends or budgeted amounts, it could indicate potential misstatements or irregularities in the financial statements that require further investigation.