CPA · Question 18 · Area III: Performing Procedures
An auditor is performing substantive analytical procedures on the payroll expense of a nonissuer. The auditor develops an expectation of payroll expense based on the number of employees and average pay rates. The difference between the auditor's expectation and the recorded amount exceeds the auditor's established threshold. Which of the following is the MOST appropriate next step?
Answer options:
Conclude that the payroll expense is materially misstated and request an adjustment.
Increase the threshold to accommodate the difference.
Perform tests of details on the payroll bank account reconciliation.
Inquire of management regarding the reasons for the difference and corroborate management's explanation with other audit evidence.
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