Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

• A. Inquiring of the client's legal counsel concerning pending litigation.
• B. Comparing the financial statements to anticipated results.
• C. Examining computer generated exception reports to verify the effectiveness of internal controls.
• D. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

Answer: (B)

In planning an audit, analytical procedures are used to gain an understanding of the entity and to identify areas with potential misstatements. Comparing the financial statements to anticipated results—such as budgets, forecasts, industry norms, and prior periods—highlights unusual or unexpected relationships. These variances signal where the audit should focus more attention and help shape the nature, timing, and extent of further procedures. That forward-looking, efficiency-driven step is exactly why this approach is the best fit for the planning phase.

Inquiries of legal counsel about pending litigation, while important for risk assessment, are more about gathering specific evidentiary details rather than shaping the overall plan through expectations. Examining computer-generated exception reports to assess internal controls is typically a substantive or control-testing activity conducted during later stages of fieldwork. Searching for unauthorized transactions is a substantive procedure aimed at uncovering unrecorded liabilities, which fits later audit steps rather than the planning stage.