Reasonableness test

A reasonableness test is an auditing procedure that examines the validity of accounting information. For example, an auditor could compare a reported ending inventory balance to the amount of storage space in a company's warehouse, to see if the reported amount of inventory could fit in there. Or, a reported receivable balance is compared to the trend line of receivables for the past few years to see if the balance is reasonable. Another reasonableness test is to compare a company's gross margin percentage to the same percentage for other companies in the same industry.

Related Courses

Guide to Analytical Procedures
How to Conduct an Audit Engagement