Question

Which of the following is true about analytical procedures? Analytical procedures are used in risk assessment,...

Which of the following is true about analytical procedures?

Analytical procedures are used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements.

Performing analytical procedures results in the most reliable form of evidence.

Analytical procedures are used for planning, but they should not be used to obtain evidence as to the reasonableness of specific account balances.

Analytical procedures are tests of controls used to evaluate the quality of a client's internal control.

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Answer #1

The correct answer is OPTION C i.e Analytical procedures are used for planning, but they should not be used to obtain evidence as to the reasonableness of specific account balances.

Explanation

Analytical procedure is a certain kind of procedure which helps the auditor to understand the clients business and make a procedure to carry out the audit process.
It helps in identifying potential risk areas in the clients business and plan accordingly other audit procedures.
Analytical procedures are done by the auditor at the planning stage of audit to assess certain kinds of potential risks inherent in the financial statements.

So, the truth about analytical procedures is :

  • Analytical procedures are used for planning, but they should not be used to obtain evidence as to the reasonableness of specific account balances.


The following statements are false about analytical procedures :

  • Analytical procedures are used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements.
  • Performing analytical procedures results in the most reliable form of evidence.
  • Analytical procedures are tests of controls used to evaluate the quality of a client's internal control.

Because analytical procedure cannot be used as a substantive procedure for specific accounts, it does not results in the most reliable form of evidence, and analytical procedures are no tests of controls.

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