Auditors Sometimes Use Comparisons of Ratios as Audit Evidence

question 3

Multiple Choice

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

• A)Unrecorded purchases.
• B)Unrecorded sales.
• C)Merchandise purchases being charged to selling and general expense.
• D)Fictitious sales.

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Definitions:

Bootstrapping

A statistical method that involves resampling with replacement from a dataset to estimate the distribution of a statistic.

Original Data Set

The initial collection of data acquired before any manipulation, cleaning, or analysis has been conducted.

New Values

Refers to data points that have been introduced into a dataset or calculation, differing from previous values.

Bias

A systematic error or distortion in results or data, leading to incorrect conclusions, often caused by a preconception or prejudice.