A company's sales price increased by 4% during the year, volumes were unchanged, but revenue has risen by 10%. What should the auditor do about the difference?
Answer and explanation
Correct answer: A. Investigate the unexplained difference of about 6%
- Step 1: An analytical procedure sets an expectation and compares it with the recorded result.
- Step 2: Expected revenue growth is about 4%, so a 10% rise leaves about 6% unexplained.
Answer
Investigate the unexplained difference of about 6%.
Why not the others: Accepting the increase without examining the difference would ignore a significant variance. Analytical procedures are used precisely to identify unusual movements. The difference is a reason to investigate further, not to conclude fraud.
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