19/08/2024 Analytical Procedures

An auditor reviews the revenues and expenses in the detailed profit and loss account of a company and investigates significant variations in comparison with the equivalent figures for the previous year.

This is most likely to detect which of the following significant problems?

• A. The need to write off a line of inventory that has become obsolete during the year

• 1. B. The misallocation of distribution costs as advertising expenses

• C. The omission of the costs of some exceptional repairs to the company’s premises from the profit and loss account

• D. Failure to make a provision for volume discounts which have been introduced this year for certain customers

A company’s gross profit percentage as shown by the draft accounts has fallen from 30% in the previous year to 20% in the current year.

Which of the following explanations incorporating errors in the measurement of opening inventory is the most plausible?

• A. An overvaluation and the inclusion, for the first time, of indirect overheads in the closing inventory valuation

• An overvaluation and an increase in revenue as a result of a marketing drive based on undercutting competitors

• An undervaluation and margins have fallen as a result of the entry into the market of a major new competitor

• 1. An undervaluation and the inclusion, for the first time, of indirect overheads in the closing inventory valuation

Analytical procedures are required to be used in which of the following?
(more than one answer)

• 1) Risk assessment

• 1. 2) Substantive audit procedures

• 1. 3) Forming an overall conclusion

Propka Co makes all sales on credit terms and has a financial year end of 30 June.

Which of the following could account for an increase in receivable days as at 30 June 20X5 as compared with the prior year?

• A. Monthly revenue doubled in June 20X5 due to sales to a new credit customer

• B. A material sale in June 20X5 has not been recorded due to a cut-off error

• C. Management decided to write-off a material debt in

• D. All selling prices were increased by 5%

Which TWO of the following circumstances would REDUCE the reliability of the results of analytical procedures?

• A.  Detailed information is available analysed by the department

• B.  Budgeted figures in the past have proved to be highly optimistic

• C.  Reliable industry data is available

• D.  Significant deficiencies in the internal control system have been identified in the past