Exam 8: Materiality Decisions and Performing Analytical Procedures

Analytical procedures are defined as "evaluations of financial information made by a study of plausible relationships among financial data components."

Numerous factors influence the effectiveness of analytical procedures. Which of the following factors would tend to make analytical procedures less effective?

Gross Operating Cycle = AR Turnover x Inventory Turnover.

Which of the key financial ratios below measures the impact of financing decisions on earnings?

When setting the level of materiality on a particular engagement, the auditor is required to consider:

Free Cash Flow = Cash Flow from Operations - Capital Expenditures.

In order to remain unbiased, it is important for the auditor not to develop preliminary expectations before performing calculations on client data.

Which key financial ratio is defined as the estimate of the number of days from the time a company purchases inventory, sells it, and collects the receivable?

As more materiality is allocated to an account, the amount of audit work on that account increases.

Which of the following rations is not considered to be a key measure of profitability?.

In allocating financial statement materiality to the various accounts, the auditor should consider:

Relationships among data may be expected to continue in the absence of known conditions to the contrary.

Many auditors make the allocation of materiality on the basis of the balance sheet account balances alone.

Inquiries of management are usually sufficient to resolve significant differences between results and expectations that are the result of analytical procedures.

The FASB definition of materiality is stated in explicit quantitative terms.

In audit planning, the auditor should recognize that there may be several levels of materiality.

The auditor makes preliminary judgments about materiality levels in planning the audit. This materiality assessment is referred to as:

Industry-wide data is relevant to the development of analytical procedures for a specific client.

"Tolerable misstatement" is the termed used to indicate materiality at the:

Analytical models that compare financial data with underlying nonfinancial data are usually less effective than analytical models that compare current year's financial data with last year's financial data.