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Audit: use of ratios in analytical procedures: current ratio

Auditors use several financial ratios during the audit process as well. Can you provide the purpose of one of the ratios used for analytical procedures? Please provide the calculation for the ratio and explain how an auditor might use the information in order to understand a client's business.

The current ratio is analyzed.

Solution Preview

Financial ratio analysis is a great analytical tool which has become more and more important as organizations have become larger and more complex. Decades ago, an auditor could scan paper records of a single location entity to look for changes that might warrant further investigation.

In the current world of sophisticated computer systems, global operations, highly technical procedures and complex sales and manufacturing techniques, the old ways are sorely outdated.

Analytical procedures, particularly ratio analysis, are ...

Solution Summary

In a 353 word solution, the use of ratios is explored including why they are so important. Then the current ratio is explained with examples of its uses and what it can point to.