Inquiries of management analytical procedures observation and. Nov 07, 2016 a simple technique used includes the ratio analysis. Techniques of auditing inspection, observation, enquiry. For example, analytical procedures may help the auditor during the planning stage to determine the nature, timing and extent of auditing procedures that will be used to obtain audit evidence for specific account balances or classes of transactions. Generally, audit test procedures are prevalently used in any organization. These procedures can indicate possible problems with the financial records of a client, which can then be investigated more thoroughly. There are various methods to perform analytical procedures, from simple comparisons to regression analysis using advanced statistical techniques.
Questions and answers auditing homework and assignment. For example,relationships between revenue,receivables,and inventory may be different when revenue and receivables arise from nonex. Experienced auditors use analytical procedures in all stages of the audit. The analytical procedure could be used for the types of transactions or events that occur regularly or have a connection with others transactions or events. It might be useful to carry a printed copy of your checklist by following checklist examples in pdf that can easily be printed. International standard on auditing isa 520, analytical procedures should be read in conjunction with isa 200, overall objectives of the independent auditor and the conduct of an audit in accordance with international standards on auditing. Analytical procedures are auditing procedures that involve analysis of relationship between financial and nonfinancial data. Analytical procedures definition and examples with. Analytical procedures involve comparisons of different sets of financial and operational info. In the guide to analytical procedures course, we discuss how to design analytical procedures and when to use them, while also providing examples of how trend analysis, ratio analysis, reasonableness testing, and regression analysis can be used. For example, when obtaining audit evidence regarding. The purpose of the internal audit policies and procedures operating manual audit manual is to provide a written summary of the the internal audit processes employed byaudit department the department. Analytical procedures that are used to test a commercial finished product, active ingredient, raw material or packaging component, must be validated before use.
Chapter 8 audit planning and analytical procedures. Data analytics is an analytical process by which insights are extracted from operational, financial, and other forms of electronic data internal. It also summarizes requirements and practices and delivers howto advice for handling analytical procedures used in audits. Analytical procedures range from simple comparisons to the use of complex models involving many relationships and elements of data. While the use of analytical procedures in such engagements is not covered in the isas, the principals regarding their use are relevant. Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time. Effective for audits of financial statements for periods ending on or afterdecember15,2012. Examples of planning analytical procedures 2012 prentice hall business publishing, auditing 14e, arenselderbeasley 8 30 summary of the parts. American journal of business education fourth quarter 2008. For example, when obtaining audit evidence regarding the valuation assertion for accounts receivable balances, the auditor may apply analytical procedures to an. Analytical procedures means evaluation of financial information through comparisons and relationships with other financial and nonfinancial information.
Analytical procedures consists of the systematic study and comparison of relationships among elements of financial information and the investigation of. To design an audit checklist, you must first identify the primary objective statement of such audit. Articlespublicationsdocumentsdataanalyticscontinuousauditing. Different types of audit test audit test procedures audit. In recent years, the topic of efficiency compared to effectiveness.
Anticipated results of the entity, such as budgets or forecasts, or expectations of the auditor, such as an estimation of depreciation. Riskbased internal auditing begins by first assessing an organizations. Procedures in the revenue cycle requires information about. Analytical procedures auditing homework and assignment help. Examples of analytical procedures related to revenue. The tests majorly determine the effectiveness in which finances have been used in an organization. Risk assessment procedures how do i gain my understanding. Amanda uses coca cola and the inventory account to demonstrate designing audit procedures my ultimate audit video study guide is available here s. Compare the days sales outstanding metric to the amount for prior years. Analytical procedures during an audit auditing and. That assessment is used to determine how to proceed with the financial audit. Analytical procedures are also commonly used in nonaudit and assurance. Pdf the usefulness of analytical procedures an empirical.
Pdf chapter 8 audit planning and analytical procedures. The audit team determined that an assertion level risk has a high likelihood of occurring and the likely magnitude exceeds overall materiality. Analytical procedures also encompass investigation of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. Multiplying the number of units sold times sales price to predict sales revenue, or multiplying the number of employees times weekly or monthly salaries to predict salaries and wages expense, for example, can contribute a majority of the evidence necessary to enable an auditor to evaluate the. It is a matter of fact and not merely a matter of opinion. Jun 24, 2019 analytical procedures are auditing procedures that involve analysis of relationship between financial and nonfinancial data. You are auditing a telecommunications client and noted that the an. Analytical procedures, audit and assurance, ratios, analysis.
Please submit your comments, preferably by email, so that they will be received by march 31, 2008. Analyze unusual or unexpected relationships identified in earlier analytical procedures perform disaggregated analysis of revenue by month or quarter, by. This ondemand course will cover auc section 520, analytical procedures, which has its source as sas no. A simple technique used includes the ratio analysis.
Review the current ratio over several reporting periods. How might auditors use preliminary analytical procedures to identify any potential concerns related to revenue. Analytical procedures in audit planning gemanalyst. The teaching of analytical procedures aps in the auditing course is an. Auditing is the process of investigating information thats prepared by someone else such as a companys financial statements to determine whether the information is fairly stated and free of material misstatement. In addition, in some cases, analytical procedures can be more effective or ef. Data analysis software is a critical tool for effectively performing these procedures. July 2001 gaopcie financial audit manual contents1 100 introduction 200 planning phase 210 overview 220 understand the entitys operations 225 perform preliminary analytical procedures 230 determine planning, design, and test materiality 235 identify significant line items, accounts, assertions, and rssi. International standard on auditing analytical procedures. Used throughout the audit to identify possible misstatements reduce detailed tests. In audit analytical procedures that seek to provide evidence as to the completeness, accuracy, and validity of the information contained in the accounting records or in the financial statements. Analytical procedures include the consideration of comparisons of the entitys financial information with, for example.
The aicpa audit guide analytical procedures, updated as of march 1, 2012, includes relevant guidance contained in applicable standards and other technical sources. A recent trend in auditing is the application of computer softwares applications in the auditing process that has hastened the effectiveness of the process. Analytical procedures are a key piece of the audit process. This relationship between receivables and sales should remain about the. It consist of evaluations of financial information through analysis of plausible relationships among financial as well as nonfinancial data. Audit planning and analytical procedures chapter 8. For example, we can use the analytical procedure to assess the reasonableness of depreciation that records in the financial statements. It is also mandatory that the auditor should perform analytical procedures near the end of the audit that assess whether the financial statements are consistent with the auditors understanding of the entity isa hksa 5206. Effective for audits of financial statements for periods ending on or. Analytical procedures in audit help with the following. These involve investigation of identified variances and relationships that seem inconsistent with each other or with other available audit evidence.
The teaching of analytical procedures aps in the auditing course is an area in accounting education that is subject to the criticisms listed above. However, the client has adequate controls around this assertion, so they decide to assess the risk as normal. It is the continuum of activities ranging from continuous control assessment to continuous risk assessment all activities on the controlrisk continuum. Used in planning to understand clients business and industry. This proposed isa may be modified in light of comments received before being issued in final form. Financial statement level account and assertion levels fraud risks feedback from audit team s brainstorming session strengths and weaknesses in internal control results from preliminary analytical procedures. Financial audit manual government accountability office. The auditor shall design and perform audit procedures that are appropriate in. Jul 06, 2017 a wide variety of analytical procedures allow auditors to compare client data with similar data from one or more prior periods. Lo 5 what is sufficient appropriate evidence when auditing revenue transactions and related accounts. Examples of analytical procedures related to revenue accounts. This paper presents a realworld case, miniscribe corporation, that may be 245.
With this, you can determine the main audit questions and procedures. Section 5 gives examples of the use of four different ap techniques and compares their. To obtain audit evidence, the auditor performs one or a combination of the following procedures. The case helps to address many of the deficiencies and criti cisms highlighted above, and at the same. Analytical procedures 437 isa 520 auditing suitability of particular analytical procedures for given assertions ref. Sap5 describes various techniques of auditing to be applied by the auditor under different circumstances. Analytical procedures are used by external auditors to get an overall assessment of financial information provided by the company thats being audited. Having a certified public accountant cpa perform an audit is a requirement of doing business for many. Secondly, research has shown that analytical procedures can be performed in various ways and that. The guide summarizes applicable requirements and practices, and delivers howto advice for handling analytical procedures used in audits.
Analytical procedures 497 aucsection520 analytical procedures source. Analytical procedures p7 advanced audit and assurance. Analytical procedures are a type of evidence used during an audit. In this authoritative guide, youll find core takeaways from applicable standards and other technical sources. An auditors guide to data analytics natasha dekroon, duke university health system brian karp experis, risk advisory. In the paper audit and assurance exam, you may be asked to compute and interpret the key ratios used in analytical procedures at both the audit planning stage and when collecting audit evidence. Analytical procedures are the procedures that use by auditors to obtain the audit evidence so that they could assess and evaluate the financial information that presents in the financial statements based on the concept that the financial information has plausible relationships with the others financial and nonfinancial information or data. Ratios and comparisons can be used to identify where the accounts can be wrong, and where additional auditing effort needs to be spent. In some cases, analytical procedures can be more effective or efficient than tests of details for achieving particular substantive testing objectives.
The documentprovides guidance for the planning, execution, reporting and followup procedures for the department and its staff. Examples of analytical procedures, in the order of their effectiveness, are. Auditing study notes chapter 15 analytical procedures lo 1. Analytical procedures should be applied to some extent for the purposes re ferred to in a and c above for all audits of. In order to distinguish this process from traditional internal auditing, the term riskbased internal auditing was coined. Complex analytical procedures on the other hand include the computer audit software and advanced statistical methods such as multiple regression analysis. In other words, they are actions taken by auditors to understand the companys finances, operating environment, and history.
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