You have been tasked with auditing advertising expenses during the audit of your client’s 12/31/2018 financial statements. You have planned to audit this account using a substantive analytical procedure. The prior year’s audited balance was $240,000. Per the prior year's audit working papers, this was composed of 80 print advertising spots with magazines/newspapers at an average cost of $2,400 per spot and 1,000 online advertising spots at $48 per spot. Industry trends show that competitors have cut the frequency of print advertising in half this year but have doubled the frequency of online advertising. Further, relative to the prior year, the price for print advertising has increased 5 percent per spot while the price for online advertising has decreased 8 percent per spot. Your client’s management reported (unaudited) 2018 advertising expense of $200,000.

Follow the steps of the substantive analytical procedure process to conclude whether your client’s 2018 advertising expense is fairly stated. Justify your conclusion. The tolerable difference for this procedure is 5% of the current year's account balance.

Answer rating: 100% (QA)

The audit procedures for auditing advertising expenses using substantive analytical procedures include four steps being 1 Determine the suitability of ... View the full answer