chap 7 analytical procedures Flashcards
analytical procedures done in the planning phase typically use what kind of data
data aggregated a a high levle like using overall finanical statement balances or comparing prior year and current year account balances unsign the unaudited trial balance
who conducts the analytical procedures during the rinal review of the audit files and FSs to identify possible oversights in the audit
a senior partner
what is one approach to overcome the limitations of using industry averages in analytical procedures?
compare the cliewnt to one or more benchmark fims in the industry
the absence of differences between the budgeting and actual results in a budget may indicate that misstatments are ____
unlikely
when a budget is prepared with tlittle thought or care they are not helpful in developing auditor ______
expectations
what are the 2 shortcomings of comparing totals or details with previous years?
- fails to consider growth or decline in business activity 2. relationships of data to other data like sales to cost of goods sold are ignored
when substantive analytical procedures are used during the testing phase of the audit, auditing standards require the auditor to do what? (2)
1.document in the working papers the auditors expectation and factors considered in its development. 2. also to evaluate the realiability of the data used to develop the expectation, including the source of the data and controls over the datas preparation
when client data are compared with budgets, what are 2 special concerns?
- must evaluate whether the budgets were realistic plans 2. the possibilitiy that current financial info was changed by client personnel to conform to the budget
the assurance provided by analytical procedures depends on what 3 things?
- the predictability of the relationship 2. the precision of the auditors expectation of the account balance 3. the reliability of the data used to develop the expectation
the usefulness of analytical procedures as audit evidence depends signifcantly on what?
using appropriate comparison data.
analytical procedures during audit planning generally use aggregage data to help understand the clients business and identify areas where misstatementare more likely. how are substantive analytical procedures different?
they are used to provide audit evidence and require more reliable evidence often using disaggregated data for the auditor to develop an expectation of the account balance being tested
reviewing a budget for budgeting versus actual results is an example of an analytical procedure where the auditor compares client data against a budget otherwise known as what?
client determined expected results
how are analytical procedures used in the completion phase?
serving as a final review for material misstatements. or financial problems and help the auditor take a final objective view at the audited FSs
how is comparison of client data with auditor determined expected results done?
the auditor calculates the expected blance for comparison with the actual balance.. thisis a substantive analytical procedure
what are the 2 most important benefits of industry comparisons
- to aid in understanding the clients business 2. as an indication of the likelyhood of financial failure
what is done to minimize the concern that current financial info was changed by client personnel to conform to the budget?
assessing control risk and performing detailed audit tests of actual data
each type of analytical procedure has auditors comparing client data against what 4 sets of data which they develop expectations from?
- Industry data 2. Similar prior-period data 3. Client-determined expected results 4. Auditor-determined expected results
analytical procedure may be performed at any of what 3 times during the engagement. what is the only time it isnt’ required
- planning phase 2. testing phase 3. completion phase testing phase
because budgets represent the clients expectations for the period, auditors should investigate the most signifcant differences between what?
budgeted and actual results since these differences could indicate potential misstatements
how are analytical procedures used in the testing phase?
as substantive tests in support of an account balance. often done in conjunction with other audit procedures
what are 3 analytical procedures that allow auditors to compare client data with similar data from one or more prior periods?
- compare the current years trial balance with that of the proceding year adjusted trial balance to see if an account should get more attention because of significant change 2. compare the detail of a total blance with similar detail for the preceding year- if there have been no significant changes in the clients operations, much of the detail making up the totals of the FSs should also remain unchanged 3. compute ratios and percent relationships for comparison with previous years-
what is the weakness in using industry ratios for auditing
the different between the nature of the clients financila info and that of the firms making up the industry total. they are broad averages so may not be meaningful or they may follow different accounting methods
how are analytical procedures used in the planning phase?
as part of risk assessment to understand the client’s business and industry and to assist in determining the nature, extent, and timing of audit procedures. help identify significant matters requiring special consideration later in the engagement
the auditor calculates the expected blance for comparison with the actual balance as an analytical procedure of client data. how do they go about this?
the auditor develops an expectation of what an accoutn balance should be by relating it to some other B/S or I/S account or accounts or by making a projection based on nonfiancial data or some historical trend
