ISA 520 - Analytical Procedures

Question 1

ISA 520 ANALYTICAL PROCEDURES - 5 purposes

Answer 1

1. To asses ROMM
2. To identify GOING CONCERN problems
3. To see if company is under pressure
4. To substantiate an account balance
5. To help the auditor form an OVERALL CONCLUSION as to whether the F/S are consistent with the auditor’s understanding of the entity

Question 2

ISA 520 ANALYTICAL PROCEDURES - 3 types

Answer 2

1. Preliminary A/P (ISA 315) > MANDATORY (Comparisions, Trends, Ratios)
2. Substantive A/P (ISA 520) > OPTIONAL (Proof in Total, Comparisions/Trends. Ratios)
3. Overall A/P (ISA 520) > MANDATORY (Ratios)

Question 3

ISA 520 ANALYTICAL PROCEDURES - 3 types

Answer 3

1. Preliminary A/P (Part of Risk Assessment > A E I O)
2. Substantive A/P > SAP + ToD (IRCU)
3. Overall A/P > H U P O O

Question 4

ISA 520 ANALYTICAL PROCEDURES - Factors to consider in using Substantive Analytical Procedures (if these factors are not present, the auditor is not going to use the Substantive Analytical Procedures)

Answer 4

1. The assessment of the risk of material misstatement
2. Whether the Expectation is Sufficiently Precise
3. The degree to which information can be disaggregated

Question 5

ISA 520 ANALYTICAL PROCEDURES > SAP > Proof of Total

Answer 5

1. PIT may reduce or remove the need for tests of detail
2. “Proof in total” is an independent check on the total value of a population, and is an example of a substantive analytical procedure.

Question 6

ISA 520 ANALYTICAL PROCEDURES > SAP > Proof of Total

Answer 6

1. PIT may reduce or remove the need for tests of detail
2. “Proof in total” is an independent check on the total value of a population, and is an example of a substantive analytical procedure.

Question 7

ISA 520 ANALYTICAL PROCEDURES > Proof in Total

Answer 7

PIT may reduce or remove the need for tests of detail EA’s expectation

LY’s wages = $ 4 320 000 ; No of employees LY = 300 ; TY = 330 TY’s wages :

Ave loan outstanding during the year = $10 000 000 ; Interest rates = 4.5% TY’s interest :

Gross depreciable sum of assets at y/e = $ 20 000 ; Useful life 4 yrs TY’s depreciation :

Sales for the year = $ 20 000 000 ; Sales commission = 1% TY’s commission :

One month rental = $ 50 000 TY’s rental :

Question 8

ISA 520 ANALYTICAL PROCEDURES > The assessment of the risk of material misstatement.

Answer 8

The assessment of the risk of material misstatement.

Risk of MM Then use…

High Tests of details ( exclusively )

High Tests of details + SAP

Low Tests of details +
SAP

Very Low SAP only

If internal controls over the area are strong, more reliance may be placed on analytical procedures than if control risk in this area was assessed as high.

Question 9

ISA 520 ANALYTICAL PROCEDURES > Whether the Expectation is Sufficiently Precise (12 month x rent)

Answer 9

Whether the Expectation is Sufficiently Precise

There is a direct correlation between the predictability of the data & the quality of the expectation derived from the data.

The more precise an expectation is for an analytical procedure, the greater will be the reliability of that procedure.

Question 10

ISA 520 ANALYTICAL PROCEDURES > The degree to which information can be disaggregated (loans at different % rates, different periods and values)

Answer 10

The degree to which information can be disaggregated.

	Degree of disaggregation		Effectiveness of SAP	
				
	Information from different operations readily available		MORE LIKELY	
				
	No segments of biz, no branches , no divisions &no disaggregation		LESS LIKELY

Question 11

ISA 520 ANALYTICAL PROCEDURES

Answer 11

1. **SAP (Substantive Analytical Procedure) **> INSPECT Rental Agreement to confirm monthly rental
2. **ToD (Test of Detail) **> MULTIPLY monthly rental x 12 month to confirm arithmetical accuracy of annual rent

Question 12

ISA 520 ANALYTICAL PROCEDURES -Exam Question

Answer 12

Question on AUDIT PROCEDURES (maybe on Quality Control question)