CPA Audit Exam-2024-Substantive Analytical Procedures-By Darius Clark-i75 CPA Review

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The CPA Audit Exam will expect you to know about analytical procedures and when they are used in a financial statement audit. Auditors try to identify predictable relationships when applying analytical procedures. Income statement accounts tend to be more predictable than balance sheet accounts. Unless there's a good reason to think otherwise, the Income statement is expected to follow a known pattern that the auditor develops from ratios and trends such as cost of goods sold as a percentage of sales, payroll tax expense as a percentage of payroll. Management has little or no discretion over payroll tax as a percentage of payroll or cost of goods sold as a percentage of sales and as a result, these accounts would likely be chosen for analytical procedures.