CAF-8 · Chapter 7 · Question 4 of 10
A junior auditor attempts to use substantive analytical procedures to predict the client's total rental expense for the year. He applies a flat 10% lease increase to the prior year's figure, concluding the minor variance is immaterial. What crucial factor did he likely fail to consider?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The reliability and disaggregation of data, such as newly opened or recently closed store locations during the year.
Explanation
When developing an expectation, the auditor must ensure the underlying data is reliable and account for known operational changes. Simply applying a flat percentage increase ignores mid-year expansions or closures that fundamentally alter the expense.
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