CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceEasy
An auditor performs a test by comparing the current year's gross profit percentage to the prior year's and to industry averages. This is an example of which type of audit procedure?
- ATest of details.
- BAnalytical procedure.
- CObservation.
- DTest of controls.
Show answer & explanationAnswer & explanation
Correct answer: B. Analytical procedure.
Comparing financial data to expectations (like prior year's data or industry averages) is the definition of an analytical procedure. These procedures help identify unusual fluctuations or relationships.
Why the other options are wrong
- A. A test of details involves examining individual transactions or account balances.
- C. Observation involves watching a process or procedure being performed.
- D. A test of controls evaluates the effectiveness of internal controls.
Analytical Procedures
Analytical procedures involve evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.
- Used at the planning stage, as substantive procedures, and at the overall review stage.
- Help identify unusual fluctuations or relationships that may indicate material misstatements.
- Can be performed at a high level or in detail.
Memory trick: Audit Procedures: Risk, Controls, Substantive (Details & Analytics).