What Is the First Step in Using Regression Analysis as Part

question 54

Multiple Choice

What is the first step in using regression analysis as part of audit data analytics?

• A)Estimate the prediction equation using data that is not currently being audited
• B)Validate the prediction equation from a statistics point of view
• C)Compare the predicted values (auditor's expectation) with the actual values
• D)Use the regression equation to make predictions for the data being currently audited

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Definitions:

Permanent Difference

A discrepancy between taxable income and accounting income that will not reverse over time, affecting the tax and financial reporting separately.

Life Insurance Proceeds

The money that beneficiaries receive from a life insurance policy upon the policyholder's death, typically exempt from income tax.

Interperiod Tax Allocation

The accounting technique of distributing tax expenses between different periods to match tax expenses with the revenues they are related to.