Audit and Assurance Practice Exam

What is the first step in performing planning analytical procedures?

1. Conducting a physical verification of assets

2. Developing an expectation of the account balance

3. Evaluating the results of previous audits

4. Reviewing industry trends

The correct answer is: Developing an expectation of the account balance

The first step in performing planning analytical procedures is developing an expectation of the account balance. This is crucial because analytical procedures involve comparing expected results based on relevant data with the actual results to identify any significant discrepancies that may indicate potential misstatements or areas of risk. By developing an expectation, auditors set a benchmark against which actual figures can be analyzed. This expectation can be based on various factors such as prior period financial information, industry averages, and other relevant financial metrics. It helps auditors to focus their attention on areas that warrant further investigation, thereby enhancing the efficiency and effectiveness of the audit process. Conducting a physical verification of assets, evaluating the results of previous audits, or reviewing industry trends are important aspects of the audit process, but they are typically not the initial step in performing planning analytical procedures. Instead, these activities can provide context or supplementary information that supports the analytical procedures once the expectation has been established.