The External Auditor Should Undertake Analytical Procedures as Part of the Planning

Essay

The external auditor should undertake analytical procedures as part of the planning process in order to identify the risk of a possible misstatement of figures in the financial statements. The results of the analytical procedures conducted on the financial statements of an audit client are listed below.
Select whether the results indicate that cash and bank balances and trade receivables might have been under or overstated.
The results show that, compared to the previous year:
a. Inventory has reduced by 5%, trade payables have increased by 7% and trade receivables have reduced by 10%. Cash and bank balances have reduced by 11%
b. There has been no change in credit control procedures or length of credit given to customers. Sales revenues have increased by 9%. Trade receivables have increased by 15%.