Gale Gordon, CPA, has found ratio and trend analysis relativelyuseless as a tool in conducting audits. For several engagements, he computed the industryratios included in publications by Standard and Poor’s and compared them with industrystandards. For most engagements, the client’s business was significantly different fromthe industry data in the publication and the client automatically explained away any discrepancies by attributing them to the unique nature of its operations. In cases in which theclient had more than one branch in different industries, Gordon found the ratio analysisto be no help at all. How can Gordon improve the quality of his analytical procedures?
Gale Gordon, CPA, has found ratio and trend analysis relativelyuseless as a tool in conducting audits. For several engagements, he computed the industryratios included in publications by Standard and Poor’s and compared them with industrystandards. For most engagements, the client’s business was significantly different fromthe industry data in the publication and the client automatically explained away any discrepancies by attributing them to the unique nature of its operations. In cases in which theclient had more than one branch in different industries, Gordon found the ratio analysisto be no help at all. How can Gordon improve the quality of his analytical procedures?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Gale Gordon, CPA, has found ratio and trend analysis relatively
useless as a tool in conducting audits. For several engagements, he computed the industry
ratios included in publications by Standard and Poor’s and compared them with industry
standards. For most engagements, the client’s business was significantly different from
the industry data in the publication and the client automatically explained away any discrepancies by attributing them to the unique nature of its operations. In cases in which the
client had more than one branch in different industries, Gordon found the ratio analysis
to be no help at all. How can Gordon improve the quality of his analytical procedures?
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