ACCA Audit and Assurance (F8) Practice Exam

What best describes analytical procedures in auditing?

1. Procedures to verify the accuracy of physical assets

2. Standard checks to ensure new employees are qualified

3. Analysing relationships that exist between financial data

4. Methods to evaluate the audit staff's performance

The correct answer is: Analysing relationships that exist between financial data

Analytical procedures in auditing involve evaluating financial information by studying the relationships and trends among various financial data points. This approach helps auditors to identify any unusual fluctuations, unexpected variances, or patterns that may warrant further investigation. By comparing current financial data with prior periods, budgets, or industry benchmarks, auditors can gain insights into the entity's operations and assess the overall reasonableness of the financial statements. This technique is particularly important in the planning and review stages of an audit, as it helps auditors to understand the client better and to focus on areas with greater risk for misstatement. The use of analytical procedures provides a basis for forming an opinion on the financial statements and enhances the overall audit effectiveness.