Important factors that lead auditors to assess inherent risk relating to financial reporting at a higher level relate to analyst following, including a history of exactly meeting analyst estimates, analysts having high earnings growth expectations, and a situation in which the company is unable to meet its consensus earnings estimates or is close to being unable to do so.
Thus, it is important for auditors to understand issues relating to analyst following. Using an internet source such as Yahoo Finance (finance.yahoo.com), locate the analyst summary expectations (see analyst opinion and analyst estimates) for the following companies: (1) General Electric, (2) Procter & Gamble, (3) Apple, and (4) Citigroup. For each company, answer the following questions:
a. How many analysts are following the company?
b. What is the average estimated sales growth for the year?
c. What is the EPS estimate?
d. What is the EPS actual?
e. What are the analysts' recommendations? For example, how many analysts are recommending buy versus hold, and so on?
f. What is your assessment of inherent risk relating to analyst following based on the data you have gathered? You may use the terms low, medium, and high to make the risk assessment.