4. Evaluating Audit Findings

Question 1

When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both

Answer 1

the auditor’s expectation and the factors considered in developing that expectation.

Question 2

An auditor’s analytical procedures most likely would be facilitated if the entity:

a. Uses a standard cost system that produces variance reports.
b. Develops its data from sources solely within the entity.
c. Segregates obsolete inventory before the physical inventory count.
d. Corrects material weaknesses in internal control before the beginning of the audit.

Answer 2

Choice “a” is correct. An auditor’s analytical procedures are facilitated when an entity uses a standard cost system with variance reports because the comparison of actual to budget will already have been performed. In addition, it is likely that management will already be aware of significant variations from budget and will be better able to address any questions the auditor may have.