Analytical Procedures Flashcards
What are the Examples of Analytical Procedures having consideration of comparisons of the
entity’s financial information wit are:
♦ Comparable information for prior periods.
♦ Anticipated results of the entity, such as budgets or forecasts, or expectations
of the auditor, such as an estimation of depreciation.
♦ Similar industry information, such as a comparison of the entity’s ratio of sales
to accounts receivable with industry averages or with other entities of
comparable size in the same industry.
What are the factors the auditor should consider for substantive audit procedure ?
The auditor should consider the following factors for Substantive Audit Procedures:
1 Availability of Data – The availability of reliable and relevant data will facilitate
effective procedures.
2 Disaggregation – The degree of disaggregation in available data can directly affect
the degree of its usefulness in detecting misstatements
3 Account Type – Substantive analytical procedures are more useful for certain types
of accounts than for others. Income statement accounts tend to be more
predictable because they reflect accumulated transactions over a period, whereas
balance sheet accounts represent the net effect of transactions at a point in time
or are subject to greater management judgment.
4 Source – Some classes of transactions tend to be more predictable because they
consist of numerous, similar transactions, (e.g., through routine processes).
Whereas the transactions recorded by non-routine and estimation SCOTs are often
subject to management judgment and therefore more difficult to predict.
5 Predictability – Substantive analytical procedures are more appropriate when an
account balance or relationships between items of data are predictable (e.g.,
between sales and cost of sales or between trade receivables and cash receipts). A
predictable relationship is one that may reasonably be expected to exist and
continue over time.
6 Nature of Assertion – Substantive analytical procedures may be more effective in
providing evidence for some assertions (e.g., completeness or valuation) than for
others (e.g., rights and obligations). Predictive analytical procedures using data
analytics can be used to address completeness, valuation/measurement and
occurrence.
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