Question

Which of the following statements concerning review analytical procedures is false?

a. The auditor's expectations in review analytical procedures should be more precise than those for substantive analytics.
b. Ratio analysis, common-size analysis, and analysis of the dollar and percentage changes in each income statement item over the previous year are useful for performing review analytical procedures.
c. Review analytical procedures helps auditors assess the overall presentation of the financial statements.
d. Auditing standards require the use of review analytical procedures to assist in identifying ending account relationships that are unusual.

Answer 1

a. The auditor's expectations in review analytical procedures should be more precise than those for substantive analytics.

Step-by-step explanation:

Analytical procedures refer to study of significant ratios and past trends and investigating unusual fluctuations.

Substantive procedures are the procedures of obtaining evidence, performed by an auditor to check completeness, accuracy and validity of transactions and account balances.

Under analytical review procedures, an auditor compares financial information of the current period with those of the previous periods, applying techniques of ratio analysis and investigating the causes of unusual fluctuations and deviations.

Substantive analysis take into consideration tests of details such as periodic inventory count, confirmation of account balances from debtors and reviewing bank statements of the client. The purpose is to detect errors, misstatements and frauds.

It is evident that substantive analytics is more precise as the deviation can be better quantified as it is more exhaustive and thus more reliable.