The following questions deal with analytical procedures. Choose the best response.

(a) As a result of using analytical procedures, the auditor determines that the gross profit has declined from 30 per¬ cent in 2000 to 20 percent in 2001. The auditor should

(1)document management's plans for reversing this trend.

(2) write a memo to management suggesting that all prices should be increased.

(3) require footnote disclosure.

(4) consider the possibility of an error in the financial statements.

b. Which of the following is not an analytical procedure?

(1) calculating inventory turnover and comparing it to prior years

(2) calculating year over year change in accounts receivable for several years

(3) calculating the year over year change in accounts payable for several years

(4) calculating the earnings per share for the current year

c. Analytical procedures used in planning an audit should focus on

(1) identifying possible scope limitations and gathering evidence in assessing control risk factors.

(2) enhancing the understanding of the entity's business and the transactions and events that have occurred since the last audit.

(3) aggregating data at a low level and substantiating management's assertions that are embodied in the financial statements.

(4) discovering material weaknesses in internal control.

d. Which of the fallowing statements is not true?

(1) The reliability of analytical procedures does depend on the accuracy of the underlying data.

(2) Comparing the current year's results with the prior year provides a high audit assurance.

(3) The auditor must use judgment and experience in interpreting the results of analytical procedures.

(4) There is an inverse relationship between the assurance provided by analytical procedures and the assurance required from detailed testing.