Which audit procedure is commonly associated with vertical analysis?

Vertical analysis is a financial statement analysis method that expresses each line item as a percentage of a base item within the same statement. This helps in assessing the relative size of the elements and comparing financial performance over different time periods or against different entities.

When conducting vertical analysis, typically, the base item is the total of the statement (such as total revenue for an income statement or total assets for a balance sheet), and each financial line item is shown as a percentage of that base. This approach allows stakeholders to easily see the proportion that individual items contribute to the overall total, which is fundamental in financial analysis.

For example, in an income statement, if total revenues are $1,000, and a specific expense is $200, that expense would represent 20% of total revenue. This clear representation using percentages facilitates quick comparisons and insights into the financial structure of the organization.

In contrast, while dollar amounts, rates, and ratios can be useful in various audit and analysis contexts, they do not effectively deliver the same clarity and comparability provided by percentages in vertical analysis. Ratios involve a relationship between two different items and may not always clarify individual proportions in a straightforward manner like percentages do.