A Limitation of Using Ratio Analysis in an Audit Engagement

question 171

Multiple Choice

A limitation of using ratio analysis in an audit engagement is that it:

• A) Often uses financial information provided by management which has not been reviewed for reliability and validity.
• B) Is an expensive method of testing.
• C) Requires computer software in order to develop meaningful interpretations of data.
• D) Is useful only when comparisons can be made across other industries.

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Definitions:

Emergent Thinking

The process of developing unique patterns of thought or solutions that arise from the interaction and synergy of simpler components.

Speculation

The process of forming theories or conjectures about a subject without firm evidence.

Introspection

Introspection involves examining one's own thoughts, feelings, and sensations to gain insight.

Aristotle

An ancient Greek philosopher and polymath whose extensive writings cover a wide range of subjects, including physics, metaphysics, logic, ethics, and politics, significantly influencing Western intellectual history.