Analytical Procedures Are Evaluations of Financial Information Made by a Study

question 59

Essay

Analytical procedures are evaluations of financial information made by a study of plausible relationships among financial and nonfinancial data.Understanding and evaluating such relationships are essential to the audit process.
The following financial statements were prepared by ABC Manufacturing Co.for the year ended December 31,2013.Also presented are various financial statement ratios for Holiday as calculated from the prior year's financial statements.Sales represent net credit sales.The total assets and the receivables and inventory balances at December 31,2013,were the same as at December 31,2012.
Required: Items 1 through 9 below represent financial ratios that the auditor calculated during the prior year's audit.For each ratio,calculate the current year's ratio from the financial statements presented above.

Determine the impact of actual direct labor hours and rates on standard costing.

Understand the concept of applying fixed and variable overhead based on standard activity bases.

Interpret the data to calculate standard hours allowed for production activities.

Understand the effect of actual input prices and quantities on inventory valuation in a standard costing system.

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Definitions:

Anecdotal Evidence

Evidence based on personal accounts or individual instances rather than systematic scientific research.

Statistical Inference

The process of drawing conclusions about populations or scientific truths from data subject to random variation.

Experimental Units

These are the individual objects or entities on which the experiment is conducted.

Subjects

Individuals or entities that are observed or experimented upon in research and studies, often used interchangeably with participants.