CHAPTER 9 c.

More thorough credit investigations made by the

1. Of the following procedures, which does not produce
analytical evidence?
a. Compare revenue, cost of sales, and gross profit with
the prior year and investigate significant variations
b. Examine monthly performance reports and investigate
significant revenue and expense variances
c. Confirm customers account receivable and clear all
material exceptions.
d. Compare sales trends and profit margins with industry
average and investigate significant differences
2. Which of the following comparisons is most useful to an
auditor in evaluating the results of an entity’s operations?
a. Prior year accounts payable to current year accounts
payable
b. Prior year payroll expense to budgeted current year
payroll expense
c. Current year revenue to budgeted current year revenue
d. Current year warranty expense to current year
contingent liabilities.
3. Which of the following analytical procedures should be
applied to the income statement?
a. Select sales and expense items and trace amounts to
related supporting documents
b. Ascertain that the new income amount in the
statement of cash flows agrees with the net income
amount in the income statements
c. Obtain from the client representatives, the beginning
and ending inventory amounts that were used to
determine costs of sales
d. Compare the actual revenues and expenses with the
corresponding figures of the previous year and
investigate significant differences.
company late in 2014
d. Fictitious sales in 2015
9. Which of the following would not be classified as an
analytical procedure?
a. Benchmarking the company’s profitability ratios
against others in the industry
b. Variance analysis of actual revenue versus budgeted
amounts for production
c. Reperforming the client’s depreciation expense using
the client’s accounting policies for capital expenditures
made during the year
d. Reconciling fixed assets disposition with the fixed asset
ledger.
10. An auditor compares this year’s revenues and expenses with
those of the prior year and investigates all changes exceeding
10%. By this procedure the auditor is most likely to learn
that
a. An increase in property tax rates has not been
recognized in the client’s accrual
b. This year’s provision for uncollectible account is
inadequate because of worsening economic conditions
c. December payroll taxes were not paid
d. The client changed its capitalization policy for small
tools during the year.

4. Which of the following tends to be most predictable for the

purpose of analytical procedures applied as substantive test?
a. Relationships involving balance sheet accounts
b. Transactions subject to management discretion
c. Relationships involving income statement accounts.
d. Data subject to audit testing in the prior year

5. Auditors try to identify predictable relationships when using

analytical procedures. Relationships involving transactions
from which of the following accounts most likely would
yield the highest level of evidence?
a. Accounts payable
b. Advertising expense
c. Accounts receivable
d. Interest expense.

6. Auditors sometimes use comparison of ratios as audit

evidence. For example, an unexplained decrease in the ratio
of gross profit to sales may suggest which of the following
possibilities?
a. Unrecorded purchases
b. Unrecorded sales.
c. Merchandise purchase being charged to operating
expense
d. Fictitious sales

7. Which result of an analytical procedure suggests the

existence of obsolete merchandise?
a. Decrease in the inventory turnover rate.
b. Decrease in the ratio of gross profit to sales
c. Decrease in the ratio of inventory to accounts
payable
d. Decrease in the ratio of inventory to accounts
receivable

8. If accounts receivable turned over 8 times in 2014 as

compared to only 6 times in 2015, it is possible that there
were
a. Unrecorded credit sales in 2015.
b. Unrecorded cash receipts in 2014