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Question 306 - IIA-CIA-Part2 discussion

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Which of the following best describes external benchmarking using trend analysis for a subsidiary of an international company?

A.
Comparing the current ratio of the subsidiary with the current ratio of another company for the same period
Answers
A.
Comparing the current ratio of the subsidiary with the current ratio of another company for the same period
B.
Comparing common-size financial statements of the subsidiary with the averages of the industry for the last two periods
Answers
B.
Comparing common-size financial statements of the subsidiary with the averages of the industry for the last two periods
C.
Comparing the sales of the subsidiary with the sales of another subsidiary for the last two periods.
Answers
C.
Comparing the sales of the subsidiary with the sales of another subsidiary for the last two periods.
D.
Comparing the sales of the subsidiary with the budgeted figures for the last two periods
Answers
D.
Comparing the sales of the subsidiary with the budgeted figures for the last two periods
Suggested answer: B

Explanation:

External benchmarking using trend analysis involves comparing a company's performance metrics with industry standards or averages over a certain period to identify trends and areas for improvement. Comparing common-size financial statements of the subsidiary with the averages of the industry for the last two periods allows for a normalized comparison by expressing financial statement items as a percentage of a common base figure (e.g., total assets or sales). This method highlights the subsidiary's financial structure and performance trends in relation to industry norms, facilitating a comprehensive analysis.

Reference:

'Internal Auditing: Assurance & Advisory Services' (The Institute of Internal Auditors)

'Benchmarking: An Essential Tool for Assessment, Improvement, and Market Leadership' (Michael J. Spendolini)

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asked 18/09/2024
junjie wang
36 questions
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