ExpertMedium1 markMultiple Choice
CPA · Question 44 · Area III: Performing Procedures
An auditor is performing analytical procedures as a substantive test for payroll expense. The auditor develops an expectation of payroll expense by multiplying the average number of employees by the average wage rate. Which of the following factors would MOST significantly affect the precision of this expectation?
An auditor is performing analytical procedures as a substantive test for payroll expense. The auditor develops an expectation of payroll expense by multiplying the average number of employees by the average wage rate. Which of the following factors would MOST significantly affect the precision of this expectation?
Answer options:
A.
The size of the payroll account relative to total expenses.
B.
The degree of disaggregation of the data (e.g., by department or month).
C.
The use of a computer to perform the calculation.
D.
The auditor's experience with the client.
How to approach this question
Analytical Procedures Precision: Higher Disaggregation = Higher Precision. Monthly > Annual. Department > Company-wide.
Full Answer
B.The degree of disaggregation of the data (e.g., by department or month).✓ Correct
The degree of disaggregation of the data (e.g., by department or month).
The precision of an expectation in analytical procedures is heavily influenced by the level of disaggregation. Developing expectations by month or by department allows the auditor to detect anomalies that might be hidden in an annual, company-wide aggregate.
Common mistakes
Confusing reliability of data with precision of expectation.
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