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 individual
± Decrease in Sales How efficient and effective in detecting components.
± Unusual Decrease/Increase in selling, admin, interest misstatement. ü In forming overall conclusions.
expenses Suitable for large volume data with predictable ü To identify previously unrecognized risk.
Examples ± Unusual Increase in Inventory, Debtors, Creditors relations.
± Unusual Decrease in Creditors, Current Ratio
2. Evaluate reliability of data
q Source of information
q Controls over preparation
Comparison Plausible Relationships q Nature and Relevance of information
¨Prior Period ¨ with financial information (e.g. q Comparability of financial information
¨Industry selling exp. to sales)
¨ with non-financial information (e.g. 3. Develop precise expectation
¨Budget q Availability of information.
¨Comparable parts of same entity Payroll to number of employees) q Disaggregated information.
q How accurately results can be predicted.
Practical Insight:
4. Determine acceptable difference
Major areas where substantive q Risk
analytical procedures are performed q Materiality.
include Sales (if sale price is fixed), q Desired Level of Assurance.
Payroll expenses. Rent Expenses,
Depreciation Expense, Selling
5. Investigate significant difference
commission, Interest Expense, Accruals. q Inquire of management
q Corroborate
q Perform other procedures.