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REVDEVT 3rd Term AY 14-15

Auditing Theory Prof. Francis H. Villamin



PSA 520, “Analytical Procedures”

1. Two analytical procedures available to the auditor are:

1) Compare current year’s balances with the preceding year.

2) Compare detail of a total balance with the preceding year.

Shortcomings of these two procedures are that

a. The first fails to consider growth or decline in business activity and the second ignores

relationships of data to other data.

b. The first ignores relationships of data to other data and the second fails to consider the growth or

decline in business activity.

c. Both fail to consider growth or decline in business activity and ignore relationships of data.

d. It is difficult, time consuming and therefore costly to perform these procedures.

2. The design of the specific analytical procedures depends upon

a. The objectives the auditor sets.

b. The data available.

c. The decision rules which apply.

d. The conclusion to be reached.

3. A basic premise underlying analytical procedures is that

a. Plausible relationships among data may reasonably be expected to exist and continue in the

absence of known conditions to the contrary.

b. These procedures cannot replace tests of details of transactions and balances.

c. Statistical tests of financial information may lead to the detection of material misstatements in the

financial statements.

d. The study of financial ratios is an acceptable alternative to the investigation of unusual


4. Which one of the following statements regarding the use of appropriate data is not true?

a. For comparisons to be useful, the data must be relevant to the objectives involved.

b. It is of questionable value to compare current year unaudited data with data that is unreliable.

c. To determine trends that enable meaningful analysis, comparisons should be made of at least

four periods for each ratio and percentage used.

d. Analytical procedures performed on disaggregated data are not as effective as those applied to

the financial statement data.

5. Which of the following best describes the problem with the use of published industry averages for

analytical procedures?

a. Lack of comparability.

b. Lack of reliability.

c. Lack of competence.

d. Lack of availability.

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