Why Is the Predominantly Substantive Approach Used for Most Entities

question 13

Essay

Why is the predominantly substantive approach used for most entities in the audit of investment balances? Why is it rarely possible to obtain much evidence from analytical procedures in the audit of investment balances?

---

Definitions:

Gross Profit Ratio

The gross profit ratio is a financial metric that measures the proportion of money left over from revenues after accounting for the cost of goods sold (COGS), expressed as a percentage.

Estimated Cost

An approximation of the cost or expenditure associated with an activity, project, product, or service, made in the absence of precise information.

Gross Profit Ratio

A financial metric expressing the gross profit as a percentage of net sales, indicating the efficiency of production or service delivery.

Inventory Destroyed

Refers to stock items that have been damaged, expired, or cannot be sold, leading to a loss for the business.