Area III: Procedures — CPA Practice Question 44

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Precision of analytics depends on the predictability of the data. Volatility/Turnover reduces predictability.

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C.Significant turnover in employees with varying pay rates throughout the year.✓ Correct

Significant turnover in employees with varying pay rates throughout the year.

Analytical procedures rely on plausible and predictable relationships. Significant turnover, especially with varying pay rates, disrupts the relationship between 'number of employees' and 'total expense', making the expectation less precise and the test less effective.

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Thinking external providers affect the precision of the auditor's *expectation* (they affect the data reliability, but turnover affects the logic of the model itself).

An auditor is performing substantive analytical procedures on payroll expense. The auditor develops an expectation of payroll expense by multiplying the number of employees by the average wage rate. Which of the following factors would MOST likely reduce the precision of this expectation?

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Practice the full CPA AUD Practice Exam 5

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