Which of the following statements is most closely associated with analytical procedure applied at substantive stage?

 Options:

a) It helps to study relationship among balance sheet accounts b) It helps to discover material misstatements in the financial statements c) It helps to identify possible oversights d) It helps to accumulate evidence supporting the validity of a specific account balance

The Correct Answer Is:

d) It helps to accumulate evidence supporting the validity of a specific account balance

Correct Answer Explanation: d) It helps to accumulate evidence supporting the validity of a specific account balance

Analytical procedures applied at the substantive stage in auditing serve a crucial role in evaluating financial statements. The correct answer, “d) It helps to accumulate evidence supporting the validity of a specific account balance,” aligns with the primary purpose of substantive analytical procedures.

Substantive analytical procedures involve the comparison of financial information and relationships between different accounts to assess the reasonableness of the amounts reported in the financial statements.

These procedures help auditors gather evidence that supports the validity of specific account balances. This process aids in corroborating the accuracy of financial data by examining trends, ratios, and patterns that exist within a company’s financial information.

Now, let’s dissect why the other options aren’t as directly associated with analytical procedures at the substantive stage:

a) “It helps to study relationship among balance sheet accounts”:

Analyzing relationships among balance sheet accounts is indeed a fundamental aspect of analytical procedures. It involves comparing various accounts and their interdependencies to understand how changes in one account might affect others.

However, while this process is part of analytical procedures, it doesn’t inherently address the primary focus of substantive analytical procedures at the substantive stage, which is to specifically accumulate evidence supporting the validity of individual account balances.

Analyzing relationships between accounts might provide insights into the coherence of financial data, but it doesn’t directly address the detailed validation of specific account balances, which is the central aim of substantive analytical procedures.

b) “It helps to discover material misstatements in the financial statements”:

The detection of material misstatements is a significant objective of auditing procedures, including substantive analytical procedures. However, this option focuses primarily on the detection of misstatements, which is only one aspect of the broader goal of substantive analytical procedures.

While these procedures do aim to identify potential misstatements, their primary purpose lies in accumulating evidence to support the validity of specific account balances rather than solely concentrating on finding misstatements.

Substantive analytical procedures encompass a more comprehensive approach that involves assessing the reasonableness of reported figures and examining the relationships between financial data to ensure the accuracy of account balances.

c) “It helps to identify possible oversights”:

Identifying potential oversights in financial statements is crucial to ensure their accuracy and reliability. However, this statement does not directly align with the primary objective of substantive analytical procedures at the substantive stage.

While these procedures might indirectly contribute to identifying oversights by scrutinizing financial data for inconsistencies or anomalies, their primary focus is on accumulating evidence to support the validity of specific account balances.

Substantive analytical procedures involve detailed analyses and comparisons of financial information to validate individual account balances rather than solely aiming to flag potential oversights.

In summary, while options a, b, and c all touch on important aspects related to auditing and analytical procedures, they do not directly address the specific goal of substantive analytical procedures at the substantive stage, which is to accumulate evidence supporting the validity of individual account balances through rigorous analysis and comparison of financial data.

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