Answered step by step
Verified Expert Solution
Question
1 Approved Answer
REGRESSION ANALYSIS Regression analysis has the same objective as trend, ratio analysis, and reasonableness testing: to identify the potential for misstatement. The advantage of
REGRESSION ANALYSIS Regression analysis has the same objective as trend, ratio analysis, and reasonableness testing: to identify the potential for misstatement. The advantage of regression over the other methods is that regression: (a) provides an explicit, mathematically objective, and precise method for forming an expectation; (b) allows the inclusion of a larger number of relevant independent variables; and (c) provides direct and quantitative measures of the precision of the expectation. The auditor's specific objective in using regression for On the Go Stores is to determine which stores should be targeted for investigation for potential misstatement in sales. The regression determines which stores have total sales that are most out of line in comparison with the others. This type of analysis is called cross-sectional regression. In predicting sales, the cross-section usually includes relevant predictors, such as the size of the store (as used in the testing above), and other features that might affect store sales volume. Question 9 For each store, we have data on the level of inventory, number of employees, whether it is new, whether it sells gas, and its size. List three additional factors you believe might be potential predictors of sales for On the Go stores. All three must something that is measurable independent of the client. (For example, average price per item sold would be obtained from the client using actual current year revenue; as such, it cannot be one of your listed factors.) (6 points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started