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Which type of analytical procedure makes the STRONGEST predictive signal in an automated environment?
ATrend analysis combined with a regression of expense on a relevant driver
BSingle-period comparison to budget
CComparison to industry average margins
DRatio analysis of two unrelated balance-sheet items
Answer & Solution
Correct answer: A. Trend analysis combined with a regression of expense on a relevant driver
1. A driver-based regression formalises the expected relationship and quantifies the unexpected variance.
2. Single-period budget comparisons can mask data manipulation built into the budget.
3. Industry averages and unrelated ratios give weaker, noisier signals.
_Source: ICAI BoS CA Final Paper 3, Ch 4 "Special Aspects of Auditing in an Automated Environment"_
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