Students should practice these Analytical Procedures – CA Inter Audit MCQ based on the latest syllabus.

Analytical Procedures – CA Inter Audit MCQ

Question 1.
What are analytical procedures?
(a) Substantive tests designed to assess control risk
(b) Substantive tests designed to evaluate the validity of management’s representation letter
(c) Substantive tests designed to study relationships between financial and non-financial information
(d) All of the above
Answer:
(c) Substantive tests designed to study relationships between financial and non-financial information

Question 2.
Which of the following is not an analytical procedure?
(a) Tracing of purchases recorded in the purchase book to purchase invoices
(b) Comparing aggregate wages paid to number of employees
(c) Comparing the actual costs with standard costs
(d) All of them are analytical procedures
Answer:
(a) Tracing of purchases recorded in the purchase book to purchase invoices

Question 3.
Analytical procedures issued in the planning stage of an audit, generally:
(a) helps to determine the nature, timing and extent of other audit procedures
(b) directs attention to potential risk areas
(c) indicates important aspects of business
(d) all of the above
Answer:
(d) all of the above

Question 4.
The basic assumption underlying the use of analytical procedures is:
(a) It helps the auditor to study relationship among elements of financial information
(b) Relationship among data exist and continue in the absence of known condition to the contrary
(c) Analytical procedures will not be able to detect unusual relationships
(d) None of the above
Answer:
(b) Relationship among data exist and continue in the absence of known condition to the contrary

Question 5.
What is the primary objective of analytical procedures used in the overall review stage of an audit?
(a) To help to corroborate the conclusions drawn from individual components of financial statements
(b) To reduce specific detection risk
(c) To direct attention to potential risk areas
(d) To satisfy doubts when questions arise about a client’s ability to continue
Answer:
(a) To help to corroborate the conclusions drawn from individual components of financial statements

Question 6.
Which of the following is true?
(a) Substantive Analytical Procedures are generally more applicable to large volume of transactions that tend to be more predictable over time.
(b) Different types of analytical procedures provide same levels of assurance.
(c) Determination of suitability of Substantive Analytical procedures is not influenced by the nature of assertion
(d) All of the above
Answer:
(a) Substantive Analytical Procedures are generally more applicable to large volume of transactions that tend to be more predictable over time.

Question 7.
Analytical procedures compare one result to another. These comparisons may be with all the following except:
(a) Similar information about top-performing subsidiaries
(b) Anticipated results (such as budgets and forecasts, or auditor expectations)
(c) Comparable information for prior periods
(d) Non-financial information
Answer:
(a) Similar information about top-performing subsidiaries

Question 8.
Performing analytical procedures may be thought of as a four-phase process. The first phase is:
(a) compare the expected value to the recorded amount
(b) formulate expectations
(c) evaluate the impact of the differences between expectation and recorded amounts on the audit | and the financial statements
(d) investigate possible explanations for a difference between expected and recorded values
Answer:
(b) formulate expectations

Question 9.
Which of the following is correct:
(a) As per the Standard on Auditing (SA) 520 “Analytical Procedure” the term “analytical procedures” means evaluations of financial information through analysis of financial data.
(b) As per the Standard on Auditing (SA) 520 “Analytical Procedure” the term “analytical procedures” means evaluations of financial information through analysis of non-financial data.
(c) As per the Standard on Auditing (SA) 520 “Analytical Procedure” the term “analytical procedures” means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.
(d) As per the Standard on Auditing (SA) 520 “Analytical Procedure” the term “analytical procedures” means evaluations of financial information through ratio analysis
Answer:
(c) As per the Standard on Auditing (SA) 520 “Analytical Procedure” the term “analytical procedures” means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.

Question 10.
Which of the following statement is correct:
(a) Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time
(b) Substantive analytical procedures are generally less applicable to large volumes of transactions that tend to be predictable over time
(c) Substantive analytical procedures are generally more applicable to small volumes of transactions that tend to be predictable over time
(d) All statements are correct
Answer:
(a) Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time

Question 11.
A basic premise of using analytical procedures is that:
(a) there exist plausible relationships among data that is highly accurate
(b) there exist plausible relationships among data that can reasonably be expected to continue
(c) they are a good indicator of fraud and error
(d) they are essential in the planning process
Answer:
(b) there exist plausible relationships among data that can reasonably be expected to continue

Question 12.
Trend analysis is:
(a) the analysis of account balances or changes in account balances within an accounting period in terms of their reasonableness
(b) the analysis of changes in an account balance over time
(c) use of sophisticated statistical analysis, including artificial intelligence techniques, to examine large volumes of data with the objective of indicating hidden or unexpected information or patterns
(d) the comparison of relationships between firms in an industry
Answer:
(b) the analysis of changes in an account balance over time

Question 13.
Expectations are developed by identifying plausible relationships that are reasonably expected to exist based on the auditor’s understanding of the client and of the industry. These relationships may be determined by comparisons with the following sources:
(a) Data from various company divisions
(b) Non-financial information
(c) Data from national cross-industry surveys
(d) Comparable information for future periods
Answer:
(b) Non-financial information

Question 14.
Which of the following statements is not true of analytical procedures as substantive tests?
(a) are used as a confirmation of an account
(b) include tests of details (either of balances or of transactions) and analytical procedures
(c) identify situations that require increased use of other procedures (i.e. tests of control, substantive audit procedures),but seldom to reduce audit effort
(d) are designed to reduce detection risk relating to specific financial statement assertions
Answer:
(a) are used as a confirmation of an account

Question 15.
Substantive analytical procedures have certain advantages. Which of the following is an advantage of substantive analytical procedures?
(a) analytical procedures are effective when applied to the financial statements of the entity as a whole rather than when applied to financial statements of components of a diversified entity
(b) obtaining data used to develop an expectation and ensuring the reliability of that data at an appropriate level of disaggregation can account for a substantial amount of the time
(c) substantive analytical procedures deliver the desired results every year
(d) substantive analytical procedures often enable auditors to focus on a few key factors that affect the account balance
Answer:
(d) substantive analytical procedures often enable auditors to focus on a few key factors that affect the account balance

Question 16.
Which of the following would NOT be considered an analytical procedure?
(a) Computing accounts receivable turnover by dividing credit sales by the average net receivables
(b) Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked
(c) Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics
(d) Developing the expected current year sales based on the sales trend of the prior 5 years
Answer:
(c) Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics

Question 17.
For all audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

	In the plan­ning stage	As a substan­tive test	In the review stage
(a)	No	Yes	Yes
(b)	No	Yes	No
(c)	Yes	No	Yes
(d)	Yes	No	No

Answer:
(c)

Question 18.
Which of the following procedures do general analytical procedures not include?
(a) Sequence tests
(b) Trend analysis
(c) Statistical analysis
(d) Reasonableness tests
Answer:
(a) Sequence tests

Question 19.
Of the following types of analytical procedure, which one uses the most variables?
(a) Reasonableness test
(b) Trend analysis
(c) Ratio analysis
(d) Data mining
Answer:
(d) Data mining

Question 20.
Which of the following statement is correct?
(a) Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time.
(b) Substantive analytical procedures are generally less applicable to large volumes of transactions that tend to be predictable over time.
(c) Substantive analytical procedures are generally more applicable to small volumes of transactions that tend to be predictable over time.
(d) None of the above.
Answer:
(a) Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time.

Question 21.
Which of the following is not an analytical procedure?
(a) Tracing of purchases recurred in the purchase book to purchase invoices.
(b) Comparing aggregate wages paid to number of employees
(c) Comparing the actual costs with standard costs
(d) All of them are analytical procedures
Answer:
(a) Tracing of purchases recurred in the purchase book to purchase invoices.

Question 22.
Which of the following is correct?
(a) Different types of analytical procedures provide different levels of assurance.
(b) Different types of analytical procedures provide similar levels of assurance.
(c) Similar type of analytical procedures provides different levels of assurance.
(d) All are correct
Answer:
(a) Different types of analytical procedures provide different levels of assurance.

Question 23.
Statement I: As per the Standard on Auditing (SA) 520 “Analytical Procedures”, the term “analytical procedures” means evaluations of financial information through analysis of plausible relationships among financial data.
Statement II: Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount.
(a) Only Statement I is correct
(b) Only Statement II is correct
(c) Both statements are correct
(d) Both Statements are incorrect
Answer:
(b) Only Statement II is correct

Question 24.
Which of the following is not an example of Analytical Procedures having consideration of comparisons of the entity’s financial information:
(a) Comparable information for prior periods.
(b) Anticipated results of the entity, such as budgets or forecasts, or expectations of the auditor, such as an estimation of depreciation.
(c) Similar industry information, such as a comparison of the entity’s ratio of sales to accounts receivable with industry averages or with other entities of comparable size in the same industry.
(d) Among elements of financial information that would be expected to conform to a predictable pattern based on the entity’s experience, such as gross margin percentages.
Answer:
(d) Among elements of financial information that would be expected to conform to a predictable pattern based on the entity’s experience, such as gross margin percentages.

Question 25.
Auditor Compares Gross Profit Ratio with that of Previous year and it is discovered that there has been a fall in the ratio. This is an example of:
(a) Analytical Procedure
(b) Test of Controls
(c) Walk-Through Test
(d) Audit Sampling
Answer:
(a) Analytical Procedure