In short
A reasonableness test is a substantive analytical procedure that builds an expectation for an account from operating or financial data, such as rental units × occupancy × average rent for rental income.
Key takeaways
- It is often more precise than comparing balances with last year.
- The data used must be reliable and, ideally, independent of the account tested.
- Differences above the threshold are investigated and corroborated.
Where it's tested
AUD: Analytical Procedures — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which factor most improves the precision of an auditor's expectation in a substantive analytical procedure?