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SA 520: Analytical Procedures - Coggle Diagram
SA 520: Analytical Procedures
Meaning of Analytical Procedures
Evaluation of financial information through
analysis of plausible relationship among both financial and non-financial data
.
They also encompass such investigation as is necessary of identified fluctuations or relationships, that are inconsistent with other relevant info. that differ from expected values by a significant amount.
The auditor's choice of procedures, methods, and level of application is a
matter of professional judgement
.
Nature of Analytical Procedures
Includes consideration of comparison of entity's financial info. with
for example
, prior period, anticipated results, industry info.
Consideration of predictable relationship between financial and non-financial data
Methods to perform
Simple comparisons
Complex analysis using advanced statistical techniques
Substantive Analytical Procedure (SAP)
1. Determine the Suitability
SAPs are more suitable to large volumes of transactions that tend to be predictable over time
Where relationships among data exist and continue in absence of known conditions to the contarary
Auditor's assessment of how effective it will be in detecting a misstatement
Influenced by nature of assertion and auditor's assessment of ROMM
Different types of AE provide different levels of assurance
Use as a corroborative AE
Considerations specific to PSEs — Relationships may not always be relevant, as little direct relationship between revenue/expense, or industry data or statistics may not always be available in public sector
2. Evaluate reliability of data for SAP
Source of info
Comparability
Nature & relevance
Controls over preparation
3. Develop an expectation
Of recorded amounts or ratio
and evaluate
whether the expectation is sufficiently precise to identify MM
4. Investigating Results
(differences)
Inquiring
MGT >
then evaluating those responses
taking into account auditor's understanding of entity and its environment, and with other AE obtained during the course
Performing other AP
(when MGT unable to provide responses, or is inadequate)
Analytical Procedure — that assists when forming an overall conclusion
Shall design and perform analytical procedure
near end of audit that assists
the auditor when forming an overall conclusion as to
whether the FS are consistent with auditor's understanding of the entity
Conclusions drawn are intended to corroborate conclusions formed during audit of items > assists to draw reasonable conclusions on which to base opinion
Result of such may identify a previously unrecognised ROMM
May be similar to those that would be used as RAP