Techniques Available as Substantive Analytical Procedures Trend Analysis — Comparison of the data with prior period balance or with a trend of 2 or more prior period balances other companies in the same industry or prepayment accounts . Structural Modelling — It constructs a statistical model from financial & non-financial data of prior accounting periods to predict current account balances relma aceon acy Download Mrugesh Madilani Virtual: Ratio Analysis — Useful for analysing asset , liability , income , expenses. Ratios can be compared over time or to ratios of separate entities within the group or with the ratios of Reasonableness Tests — This relies upon non- financial data for the audit period under consideration. These are more applicable to income statement accounts & certain accrual teleitewey Analytical Procedures that A: Forming an Overall Conclusion Considerations Specific to Public Sector Entities . When The conclusions drawn from results of analytical procedures designed & performed in accordance with are intended to corroborate conclusions formed during audit of individual components or elements of financial statements. This assists auditor to draw reasonable conclusions on which to base auditor's opinion The relationships between financial items in traditional business entities may not always be relevant in audit or government or public sector entities In Public Sector entities there is little relationship between revenue & expenditure In Addition because expenditure on acquisition of assets may not be capitalised there is no relationship between expenditures . Eg — Inventories & FA and amount of those reported in financial statements Also Industry data or statistics or comparative purpose may not be reliable in public sector However other relationships are there cost per kilometer of road construction Riana nal xcnuee EMimcouy p plication on your PhoneCHAPTER 8 - SA 520 - Analytical Procedures PVE iste Mea ceyete escola aM Uae aTa Cole A CLT While Designing & Performing Substantive Analytical Procedures either alone or in combination with test of details , auditor shall 1. Determine the suitability of substantive analytical procedures for given assertions taking into account assessed risk of material misstatements Extent of Reliance on Reliability of Data for Analytical Procedures . Source of the information available. External is more reliable than Internal . Comparability of the information available with Industry data . Nature & relevance of the information . Evaluate the reliability of data from which auditor's expectation of recorded amount or ratios is developed . Determine an expectation of recorded amounts or ratios |. Determine the amount of difference of available . Control over preparation of the information that are designed to ensure its completeness , accuracy & validity recorded amounts from expected values so we can investigate Risk of Material Misstatements — Whether Expectation can be developed sufficiently precisely Suitability of Particular Analytical Procedure for Given Assertions 1. Accuracy with which the expected results Itis more applicable to large volume of transactions that are predictable over time Itis based on expectation that relationships among data exists Suitability will depend upon auditor’s assessment of how effective it will be in detecting material misstatements Different types of analytical procedures provide different levels of assurance Determination of suitability of particular substantive analytical procedure is influenced by nature of assertion & auditor’s assessment of risk of material misstatement Particular substantive analytical procedures may also be considered when test of details are performed on same assertion of Substantive Analytical Procedures can be predicted . Degree of which information can be disaggregated . Availability of Information both financial & non-financial. If Information is available auditor may consider reliability of information Investigating the Results of Analytical Procedures — If there are fluctuations with Expected Values 1. Inquiring with the Management & Obtaining appropriate audit evidence relating to management's responses and evaluating those responses and taking into account auditor’s understanding of the entity & other audit evidence obtained during the course of audit . Performing other audit procedures as necessary in the circumstances when management is unable to provide an explanation or management's response is not considered adequate For Free Download of charts visit www.mrugeshmadlani.com / Download Mrugesh Madlani Virtuals Mobile Application on your PhoneAs per SA 520 Analytical Procedures means Evaluation of financial information through analysis of plausible relationships among both financial & non- financial data . It also covers investigation of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount Purpose & Ti Procedures ing of Analytical Purpose 1. To obtain relevant & reliable audit evidence |. To design & perform audit procedures near the end of audit that assist auditor in forming an overall conclusion as to whether financial statements are consistent with auditor’s understanding of entity Timing Analytical Procedures are required in planning phase , testing phase and also required during completing phase relma aceon Download Mrugesh Madilani Virtuals Mobile A) Analytical Procedures in Planning the Audit 1. In Planning stage , analytical procedures help the auditor in : * Understanding the client’s business & © Identifying areas of potential risk by identifying those things which auditor was unaware of . Assist Auditor in determining nature , timing & extent of his other audit procedures . In Analytical procedure in planning the audit use both financial & non-financial information Factors to be Considered for Substantive Procedures (PRASAD) Predictability — More appropriate when account balance or relationships between items of data are predictable Inherent Risk — When Inherent risk in any area is high , only analytical procedures won't solve purpose , we should may design test of details to address higher inherent risk Availability of Data — Availability of relevant & reliable data will help in performing analytical procedures Account Type — More useful for income statement accounts because they are predictable , whereas Balance sheet accounts represent net effect of transactions at a point in time Source — More suitable for transactions that are of similar nature , whereas transactions by non-routine and estimation SCOT are often subject to management judgement and therefore difficult to predict Nature of Assertion — It is more effective for some assertions than for others. Analytical Procedures using data analytics can be used to address completeness , valuation / measurement & occurrence Disaggregation — Degree to which data can be disaggregated will directly help in detecting misstatements isit www.mrugeshmadlani.com / lication on your Phone