CAF 08: Audit and Assurance Overview:
Chapter 15: Analytical Procedures This chapter discusses Use of Analytical Procedures:
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Secret Sheet for Quick Revision As Substantive Procedures, and (For Autumn 2024)
(For students of Muhammad Asif, FCA) In Forming Overall Conclusion.
ISA 520: ANALYTICAL PROCEDURES
Introduction Use/Purposes of Analytical Procedures
Definition As Risk assessment Procedures As Substantive Procedures In forming overall conclusion
Evaluation of financial information through
Comparison and Plausible Relationships
+ Investigation. Examples: 1. Determine suitability of assertion ü To corroborate conclusions on
±Decrease in Sales How efficient and effective in detecting misstatement. individual components.
±Unusual Decrease/Increase in selling, admin, Suitable for large volume data with predictable relations. ü In forming overall conclusions.
Examples interest expenses ü To identify previously
±Unusual Increase in Inventory, Debtors, 2. Evaluate reliability of data unrecognized risk.
Creditors q Source of information
Comparison Plausible Relationships ±Unusual Decrease in Creditors, Current Ratio q Controls over preparation
¨Prior Period ¨ with financial information (e.g. selling q Nature and Relevance of information
¨Industry exp. to sales) q Comparability of financial information
¨Budget ¨ with non-financial information (e.g.
¨Comparable parts of same entity Payroll to number of employees) 3. Develop precise expectation
q Availability of information.
q Disaggregated information.
q How accurately results can be predicted.
4. Determine acceptable difference
q Risk
q Materiality.
Practical Insight:
q Desired Level of Assurance.
Major areas where substantive analytical procedures are
performed include Sales (if sale price is fixed), Payroll
5. Investigate significant difference
expenses. Rent Expenses, Depreciation Expense, Selling
q Inquire of management
commission, Interest Expense, Accruals.
q Corroborate
q Perform other procedures.