Question

In: Accounting

Which of the following is a substantive analytical procedure? 1. Foot the accounts payable trial balance...

Which of the following is a substantive analytical procedure?

1. Foot the accounts payable trial balance and compare with the general ledger.

2. Confirm accounts payable balances directly with vendors.

3. Multiply the commission rate by total sales and compare the results with commission expense.

4. Compute inventory turnover for each major product line and compare with industry standards.

Group of answer choices

All of the above are substantive analytical procedures

Item 4 only

Items 3 and 4

Item 3 only

Items 1, 3, and 4

Expert Solution

The answer is Items 3 and 4. Here is the explanation

Analytical procedures are done to find out some audit evidence by comparing financial data with non financial data. In substantive analytical procedures the auditor gets the evidence about account balances or class of transactions.

The option 1. Foot the accounts payable trial balance and compare with the general ledger is not a substantive analytical procedure because here we are testing the details of accounts payable in trial balance and recalculate the balances and compare them with geneal ledger to get an evidence. Here we are not checking about transactions but balances.

The option 2 Confirm accounts payable balances directly with vendors is not a substantive analytical procedure because here also we are testing the balance of account payable with the help of vendors and we are confirming that the balance is right. So the above two are not ubstantive analytical procedures.

The option 3. Multiply the commission rate by total sales and compare the results with commission expense is a subtantive analytical procedure because here we are checking the balance of commission as per the sales and actual commission given. Here we are trying to find the evidence about account balance of commission. So it is a substantive analytical procedure.

The option 4. Compute inventory turnover for each major product line and compare with industry standards is a analytical procedure because here we are checking the evidence on turnover of inventory by comparing the compay's inventory with industry's standards.

ekkarill92 answered 8 months ago

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