Which of the Following Describe Analytical Procedures in Audit Planning

question 88

Multiple Choice

Which of the following describe analytical procedures in audit planning?

• A)They are required in every audit.
• B)They are often effective in identifying potential misstatements in the financial statements.
• C)The most effective analytical procedures rely on the auditor's knowledge of the business and industry.
• D)They form an effective method but present a huge burden in relation to cost.

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Definitions:

Degree of Operating Leverage

A financial metric that measures the sensitivity of a company's operating income to changes in its sales, highlighting the effect of fixed costs on profits.

Conventional Cash Flows

Conventional cash flows involve an initial outlay followed by a series of positive cash inflows, typically seen in standard investment scenarios.

Marginal Cost

The additional cost incurred in producing one more unit of a product or service, critical for making production decisions.

Contribution Margin

The contribution margin represents the portion of sales revenue that is not consumed by variable costs and is available to cover fixed costs, contributing to profit.