An internal auditor wants to assess whether a manufacturing division's cost performance is reasonable by comparing its unit production costs against the average unit costs achieved by comparable divisions in peer organisations. Which analytical review technique does this comparison represent?
- ATrend analysis, because the auditor is examining how the division's unit costs behave across successive reporting periods over time.
- BRatio analysis, because the auditor is computing the relationship between two financial statement line items within the division's accounts.
- CBenchmarking analysis, because the auditor is measuring the division's performance against an external comparable standard drawn from peer organisations. Correct
- DVariance analysis, because the auditor is quantifying the gap between the division's budgeted costs and its actual recorded costs.
Why A is wrong: Tempting because both techniques evaluate performance, but trend analysis studies one entity's data across time periods, whereas this comparison is against external peers at a point in time.
Why B is wrong: Tempting because unit cost is a ratio, but ratio analysis interprets internal relationships, while the pivot here is the external peer comparison that defines benchmarking.
Why C is correct: Correct: benchmarking compares an entity's metrics to an external reference point such as peer or industry performance to judge whether results are reasonable.
Why D is wrong: Tempting because it also measures a difference, but variance analysis compares actual against a plan or budget, not against external peer performance standards.