When auditing a construction company, the auditor might use audit data analytics (ADA) to determine, _______.
A)the likelihood of receiving audit fees upon conclusion of the audit
B)the gross margin on each construction contract
C)the inherent riskiness of the client's industry
D)if appropriate receivables balance confirmations have been returned

Question

Quizplus · Accepted Answer

Audit data analytics (ADA) can be used to analyze financial data and identify patterns or trends. In the case of a construction company, the auditor might use ADA to determine the gross margin on each construction contract, which can be a key metric for assessing profitability and risk. This information can help the auditor identify areas where there may be potential financial reporting issues, such as incorrect revenue recognition or understated costs. Therefore, option B is the best choice. Option A is incorrect because audit data analytics are not used to determine the likelihood of receiving audit fees. Option C is incorrect because inherent risk is assessed based on the characteristics of the client and its industry, and does not involve data analytics. Option D is incorrect because accounts receivable confirmations generally do not involve data analytics.

When Auditing a Construction Company, the Auditor Might Use Audit