Analytical Procedures Enable the Auditor to Predict the Balance or Quantity

question 62

Multiple Choice

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except:

• A)tracing transactions through the system to determine whether procedures are being applied as prescribed.
• B)comparison of financial data with data for comparable prior periods, anticipated results (e.g., budgets and forecasts)and similar data for the industry in which the entity operates.
• C)study of the relationships of elements of financial data that would be expected to conform to a predictable pattern based upon the entity's experience.
• D)study of the relationships of financial data with relevant nonfinancial data.

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Definitions:

Income Bonds

These are a type of debt security where interest payments depend on the issuer's earnings, meaning if the issuer's earnings are insufficient, the bondholders may not receive interest payments.

Regular Bonds

Standard debt securities issued to investors that pay fixed or floating interest rates until maturity, where the principal amount is then repaid.

Bankrupt

A legal status of a person or entity that cannot repay debts to creditors and seeks the relief of such debts through court proceedings.

Interest Rates

The percentage charged or paid for the use of money, typically expressed as an annual rate provided by lenders to borrowers.