When planning an audit, auditors determine the nature, timing, and extent of testing based on their assessment of the risk of material misstatement (RMM). RMM, in turn, is based on the auditors' understanding of the audited entity and its environment, including its internal control. Auditors use risk assessment procedures like inquiry, observation, inspection, and analytical procedures to gain that understanding

Analytical procedures involve the comparison of high level financial and nonfinancial data to identify unexpected relationships that warrant further investigation. For example, if recorded financial results (eg, COGS = $1 million) are significantly different than budgeted amounts (eg, COGS = $2 million), the auditor should investigate the variance to ensure it is not due to error or fraud.

(Choice A) Management makes claims about the availability of records twice: in the engagement letter (before planning) and in the management representation letter (at the end of fieldwork).

(Choice B) Because immaterial misstatements in prior periods can have material effects on current financial statements, auditors may discuss prior-period misstatements with the audit committee. However, the effects of those misstatements on the current period will likely not be evident until the later stages of the audit.

(Choice C) Inquiry of a client's attorney is among the last procedures because the attorney's response needs to cover legal developments through the audit report date.