Which of the following is not an analytical procedure?
Options:
| 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 procedure |
The Correct Answer Is:
a) Tracing of purchases recurred in the purchase book to purchase invoices.
Correct Answer Explanation: a) Tracing of purchases recurred in the purchase book to purchase invoices.
Analytical procedures are an essential part of the audit process, involving the evaluation of financial information through analysis of plausible relationships among financial and non-financial data. In the given options, the correct answer is (a) Tracing of purchases recurred in the purchase book to purchase invoices.
Tracing of purchases recurred in the purchase book to purchase invoices is not an analytical procedure because it is primarily a test of details, not an analysis of relationships or trends.
Tracing involves verifying individual transactions by following the path of recorded transactions through the accounting system to the supporting documentation, such as invoices. This procedure is more focused on ensuring the accuracy and completeness of specific transactions rather than analyzing patterns or relationships.
Tracing purchases recurred in the purchase book to purchase invoices primarily focuses on verifying individual transactions by matching them with supporting documentation, ensuring accuracy and completeness.
However, it lacks the analytical depth of examining trends or relationships within financial data, which is the hallmark of analytical procedures. In contrast, options (b) and (c) involve scrutinizing broader patterns and relationships, such as labor efficiency or cost variations, providing a comprehensive overview of the company’s operations.
These analytical procedures aim to uncover potential discrepancies or areas of concern by comparing and analyzing different sets of financial data, aiding auditors in assessing the integrity of financial information and detecting irregularities that may require further investigation.
Why the Other Options are Incorrect?
b) Comparing aggregate wages paid to the number of employees:
This analytical procedure involves examining the relationship between the total wages disbursed and the count of employees. It aims to assess if the wages paid align with the expected level based on the number of individuals employed.
Anomalies or discrepancies in this comparison could signal issues such as payroll errors, irregularities in compensation, changes in workforce productivity, or even potential instances of ghost employees or unauthorized payments.
c) Comparing the actual costs with standard costs:
This analytical procedure revolves around evaluating the variance between the actual costs incurred in business operations and the predetermined standard costs. Standard costs are pre-established expected costs per unit of production or operation.
Comparing these with the actual costs helps identify discrepancies that could arise due to inefficiencies, changes in resource prices, production issues, or deviations from expected norms. Significant differences between actual and standard costs can trigger further investigation into the reasons behind these discrepancies.
d) All of them are analytical procedures:
This statement implies that each of the options listed (b and c) involves an analytical procedure. While this option is incorrect because tracing purchases to purchase invoices is not an analytical procedure, it asserts that the procedures described in options (b) and (c) do indeed fall under the category of analytical procedures.
Analytical procedures generally involve reviewing and analyzing data to identify patterns, relationships, and fluctuations that may indicate potential risks, anomalies, or areas that require further investigation.
These methods enable auditors to gain a comprehensive understanding of financial information and detect irregularities or deviations from expected norms in a company’s operations or financial statements.
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