Question

Which of the following statements is correct regarding the predictability of analytical procedures in a financial statement auditA Relationships involving only balance sheet accounts tend to be more predictable than relationships involving income statement accounts.
B Relationships involving income statement accounts tend to be more predictable than relationships involving only balance sheet accounts.

Answer 1

Answer:

The answer is letter B

Explanation:

Relationships involving income statement accounts tend to be more predictable than relationships involving only balance sheet accounts.

Because analytical procedures are evaluations of financial information made by study of plausible relationships among financial and nonfinancial data using models that range from simple to complex.  The reason is that income statement amount is based on transactions over a period of time, but balance sheet amounts are for a moment in time. Moreover, amounts subject to management discretion tend to be less predictable.