Your Ask Joey ™ Answer

Why would the audit team compare sales trends on a quarterly or annual basis?

The main reason is to understand and developments in the business and begin to assess the reasonableness of any fluctuations in revenue. This analysis is known as analytical procedures.

The visual below illustrates how the audit team could compare quarterly sales and the type of explanation a CEO could provide for why sales increased (or decreased). If the CEO doesn’t provide a good explanation, then the audit team will need to dig in and understand if there is anything fraudulent going on.

Back To All Questions

You might also be interested in...

  • Discontinued Operations on the FAR CPA Exam

    Overview of Discontinued Operations In financial reporting, discontinued operations refer to a component of a company’s core business or product line that have been divested or shut down. Discontinued operations will be reported (net of tax) separately from continuing operations on the income statement. The reason that discontinued operations are reported separately is so that...

  • Equity Method Excel Workbook

    If you would like to use the Excel workbook that was used to create the Universal CPA lecture on the equity method, please click the link below to download the Excel workbook: Equity Method Lecture Example

  • How Hard is the CPA Exam?

    So you’re thinking about taking the CPA exam? Whether you have a dream of becoming a tax advisor, feel as though you need public accounting experience, or just want to solidify your business acumen, the CPA license is one of the most prestigious and well respected licenses in the business world. The exam itself is...