An Analytical Procedure Used to Test the Reasonableness of an Account

question 56

Multiple Choice

An analytical procedure used to test the reasonableness of an account balance occurs when the auditor calculates the expected balance and compares it with the actual balance. The auditor's expected account balance may be determined by:

• A) using industry standards.
• B) using Dun and Bradstreet reports.
• C) relating it to another account that involves financial statement articulation.
• D) inquiry of the client.

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Definitions:

P/E Ratios

The Price-to-Earnings Ratio is a valuation metric used to measure a company's current share price relative to its per-share earnings.

Average Returns

The arithmetic mean of a series of returns generated over a period of time.

Dividend Yields

Dividend yields represent the ratio of a company's annual dividend payments to its current stock price, indicating how much an investor earns in dividends relative to the share price.

Abnormal Returns

Financial gains or losses that deviate from the expected market return, indicating better or worse performance than the market average.