Which of the following analytical procedures most likely would be used during the risk assessment stage of an audit?
A. Reading the letter from the client’s attorney and considering the threat of litigation.
B. Reading the financial statements and notes and considering the adequacy of evidence.
C. Comparing current year to prior year sales volumes.
D. Comparing the current year ratio of aggregate salaries paid to the number of employees to the prior year’s ratio.
Answer:C
C is corrent because comparing current year to prior-year sales volumes is an analytical procedure and because analytical procedures in risk assessment often use such aggregated data.
A is incorrect because reading a letter from an attorney is not considered an analytical procedure.
B is incorrect because reading the financial statements and notes may be considered an analytical procedure but it would be performed during the final review stage of an audit, not during planning.
D is incorrect because comparing such salaries is most likely to be an application of analytical procedures as a substantive procedure.