Analytical Procedures

Question 1

What 3 purposes do analytical procedures serve?

Answer 1

1 Required in planning for risk assessment

2. useful as a substantive procedure (not required)
3. Required as a final review.

Question 2

What does the usefulness of analytical procedures depend on?

Answer 2

The predictability of the relationship
The precision of the expectation
The reliability of the underlying data used.

Question 3

What is an analytical procedure?

Answer 3

it is a comparison between an auditor expectation and a recorded balance.

Question 4

What should analytical Procedures in planning the audit focus on?

Answer 4

1. enhancing the auditors understanding of the client’s business and the events that have occurred since the last audit.
2. identifying areas of specific risk to the audit

Question 5

What are analytical procedures done during the final review stage on an audit?

Answer 5

consider whether there are any unusual or unexpected balances that were not previously identified.

Question 6

Anal. Proc. used in planning generally use data that….

Answer 6

is highly aggregated

Question 7

The expected effectiveness and efficiency of Anal. proc. in identifying potential misstatements depends on..

Answer 7

1. the nature of the assertion
2. the plausibility and predictability of the relationship
   3 the availability and reliability of the data used to develop the expectation
   4 the precision of the expectation

Question 8

what is the objective of performing anal procs in planning?

Answer 8

to identify the existence of unusual transactions and events

Question 9

What is the objective of anal procs in the final review stage of an audit?

Answer 9

assist the auditor in evaluating the overall FS presentation and assessing conclusions reached.

Question 10

What type of test is considered looking at a sample of a population?

Answer 10

test of details

Question 11

Which tends to be most predictable for purposes of anal procs applied as substantive tests? BS accts or IS accts?

Answer 11

Relationships involving income statement accounts tend to be more predictable for anal review purposes bc the IS accts represent transactions occurring over a period of time.

Question 12

What are the overall responses to the risk of MM due to fraud?

Answer 12

1 assigning personnel with particular skills relating to the area and considering the necessary extent of supervision to the audit
2 increasing the consideration of mgmt’s selection and application of acct principles
3. making audit procedures less predictable

Question 13

What is the A required to communicate to the audit committee?

Answer 13

Significant acct policies.
Mgmt judgments and acct estimates.
significant audit adjustments.
Disagreements with mgmt.
Consultation with other accountants. 
Difficulties encountered in performing the audit.

Question 14

When using a specialist…

Answer 14

the auditor is required to understand the objectives and scope of the actuary’s work. ensuring that the data provided to the specialist is tested, and evaluating whether the specialist’s findings support the related assertions in the FS.

Question 15

Under what circumstances is the A allowed to reference the specialist in the report?

Answer 15

when the auditor expresses a modified opinion in the report as a result of the specialist’s findings.

Question 16

How does an A decrease detection risk?

Answer 16

increase the emphasis on tests of details, decrease detection risk

Question 17

as the acceptable level of detection risk increases, the A may change the..

Answer 17

timing of substantive tests from year end to an interim date.

Question 18

the acceptable level of detection risk is inversely related to the…

Answer 18

assuance provided by substantive tests