Question

An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that:

A) The company is experiencing financial difficulties.
B) The company is growing rapidly.
C) The company is undergoing a change in leadership.
D) The company is following industry trends.

Answer 1

An auditor comparing annual revenues and expenses with similar amounts from the prior year and investigating all changes exceeding 10% is a procedure aimed at monitoring and evaluating financial performance.

Step-by-step explanation:

An auditor comparing annual revenues and expenses with similar amounts from the prior year and investigating all changes exceeding 10% is a procedure aimed at monitoring and evaluating financial performance. It does not directly indicate financial difficulties or rapid growth, as these factors can vary based on the company's specific circumstances. It also doesn't necessarily indicate a change in leadership or compliance with industry trends.

Instead, this procedure allows the auditor to identify significant changes in financial figures and investigate the reasons behind them, which can help in assessing the company's overall financial health and potential areas of concern.