An auditor is performing analytical procedures as a substantive test for payroll expense. The auditor develops an expectation of payroll expense by multiplying the average number of employees by the average wage rate. Which of the following factors would MOST significantly affect the precision of this expectation?

Answer options:

The size of the payroll account relative to total expenses.

The degree of disaggregation of the data (e.g., by department or month).

The use of a computer to perform the calculation.

The auditor's experience with the client.

How to approach this question

Analytical Procedures Precision: Higher Disaggregation = Higher Precision. Monthly > Annual. Department > Company-wide.

Full Answer

B.The degree of disaggregation of the data (e.g., by department or month).✓ Correct

The precision of an expectation in analytical procedures is heavily influenced by the level of disaggregation. Developing expectations by month or by department allows the auditor to detect anomalies that might be hidden in an annual, company-wide aggregate.

Common mistakes

Confusing reliability of data with precision of expectation.

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