Question

Which of the following is the most direct method of focusing on changes in the company’s balance sheet and income statement?a. Calculating key ratios and comparing them from period to periodb. Comparing account balances in the statements from one period to the nextc. Performing a vertical analysisd. Performing a horizontal analysis

Answer 1

Performing a horizontal Analysis

Step-by-step explanation:

Particularly in the case of investigating fraud and error, horizontal changes are the most direct way of focusing on changes because rather than the vertical which looks at the change as a percentage of Sales or Total Assets, the horizontal looks at change in each item from period to period, and takes the change amount as a percentage of the initial year's amount. i.e (Year 2 amount - Year 1 amount) / Year 1 amount = % Change in item in consideration.