Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

According to U.S. auditing standards, which analytical procedures must the auditor perform?

1. Internal controls.

2. A management representation letter.

3. Interest expense.

4. Revenue.

The correct answer is: Revenue.

The requirement for auditors to perform analytical procedures is a fundamental aspect of the auditing process that helps to identify potential areas of risk and assess the overall reasonableness of financial statements. Revenue is a critical area for analysis because it directly affects the profitability and operational performance of an organization. Analytical procedures related to revenue involve evaluating trends, ratios, and patterns that should manifest in the financial results based on the organization's historical performance, industry norms, and economic circumstances. For instance, an auditor might assess the relationship between revenue and units sold, or analyze the changes in revenue relative to gross margin or net income. Such procedures not only assist in detecting anomalies or inconsistencies but also provide a basis for evaluating the effectiveness of the internal controls associated with revenue recognition. While internal controls, management representation letters, and interest expense are crucial in an audit, they do not specifically reflect the mandatory analytical procedures the auditor must perform according to U.S. auditing standards. Internal controls relate to the processes to ensure the integrity of financial reporting, while a management representation letter signifies management’s acknowledgment of its responsibilities; interest expense, though relevant, does not carry the same level of scrutiny or requirement for analytical procedures as revenue does due to its nature and the potential for significant variation. Focusing on