CIA-2 - Information Gathering, Analysis, and Evaluation (40% of the exam) - Section B.5
Apply analytical review techniques, including ratio, variance, trend, and benchmarking analysis of financial and nonfinancial information, and determine the appropriate technique for the engagement's objectives.
Analyse ratios, variances, trends, and benchmarking results across both financial and nonfinancial information to identify relationships or changes that warrant further investigation. Determine which analytical technique best achieves a given engagement's objectives, recognising that different techniques surface different kinds of anomalies or trends.
Ratio analysisVariance analysisTrend analysisBenchmarking
Practice question for this objective
lock_openFree sampleInformation Gathering, Analysis, and Evaluationmedium
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.check_circle Correct
DVariance analysis, because the auditor is quantifying the gap between the division's budgeted costs and its actual recorded costs.
Benchmarking compares an entity's performance against an external comparable standard, distinguishing it from trend, ratio, and variance techniques. The defining feature of benchmarking is the external reference point: performance is judged against comparable peer or industry standards rather than against the entity's own history, its internal ratios, or its own budget, which is what separates it from the other three techniques.
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.
Exam traps in Information Gathering, Analysis, and Evaluation
Answers that look right on this material and are not. Each one is a distractor from a different question in the CIA-2 bank for this domain.
Benchmarking, which measures the division's results against the equivalent figures of competing divisions in other firms.
errorWhy it is wrong: Benchmarking needs an external reference; it is tempting because divisions can be compared, but the stem uses only one division's own history.
It provides conclusive audit evidence that payroll has been misstated, so the auditor can report a finding without performing any additional substantive procedures.
errorWhy it is wrong: Tempting because the variance is striking, but analytical variances only signal where to look; they identify areas for inquiry rather than proving a misstatement on their own.
Benchmarking, because the approved budget is treated as an external reference standard set outside the organisation.
errorWhy it is wrong: A budget is an internal standard, not an external reference; calling it external confuses benchmarking with an internal budget-to-actual comparison.