Post by nShrestha on Aug 11, 2013 17:53:53 GMT 5.75
Definition: Audit review test designed to provide evidence of the completeness, Accuracy and Validity of Accounting records and Financial Statements. Evaluation of Financial Information made by a study of plausible relationships among both financial and non financial data.
In Planning stage as Risk Assessment Procedures
In this stage auditor should apply analytical procedures to obtain an understanding of the entity and its environment.
In Execution stage as Substantive Procedures
In Reporting stage as overall review
At the end or near the end of the audit when forming an overall conclusion as to whether the financial statements as a whole are consistent with the auditor’s understanding of the entity.
Analytical Procedures tools
Trend Analysis: analysis of changes of an account balance over time
Ratio Analysis: analysis of relationship among financial statement accounts
Reasonableness Analysis : Computations usually involving non-financial data used to estimate an account balance
- Previous period – Audited corresponding figures
- Current period – Current Financial Statements
- Future period – Budget or forecasted or Industry based
In Planning stage as Risk Assessment Procedures
In this stage auditor should apply analytical procedures to obtain an understanding of the entity and its environment.
- Account balance comparison: Compare unadjusted trial balance amounts with adjusted tried balance amounts of the prior year.
- Computation of significant ratios: Compare current year ratios to current industry ratios and prior year computing ratios.
- Computation of ratios using non-financial and financial data. E.g., sales per square foot of sales space.
- Regression analysis: Expected amount in desired unit
In Execution stage as Substantive Procedures
- The suitability of using substantive analytical procedures given the assertions;
- Reliability of the data;
- Precision of expectation to identify a material misstatement at the desired level of assurance and
- Amount of any difference of recorded amounts from expected values that is acceptable.
In Reporting stage as overall review
At the end or near the end of the audit when forming an overall conclusion as to whether the financial statements as a whole are consistent with the auditor’s understanding of the entity.
- Comparisons with similar financial data of the prior year or of the client’s industry.
- Ratio analysis.
- Trend analysis.
- Development of common-size financial statements.
Analytical Procedures tools
Trend Analysis: analysis of changes of an account balance over time
Ratio Analysis: analysis of relationship among financial statement accounts
Reasonableness Analysis : Computations usually involving non-financial data used to estimate an account balance