Part One Amazon Company What are Analytical procedures? These are a range of financial audit processes which helps the auditor to help full knowledge of the business of the client whom he is serving. It will help define and identify possible risk areas affecting the business. Use of analytical procedures in auditing Planning stage In this stage, I will have to use to understand the business, determine the areas that are under high risks and in the nature of planning, timing and extend of other audit procedures. The analytical procedures in this phase is majorly based on the interim financial reports, budgets and even other management accounts. The analytical procedures will indicate some major areas of risks that otherwise he couldn’t have noted. I will also use analytical procedures to review the nonfinancial information. For example comparing the number of employees that are employed in the various years. Using Analytical procedures as substantive tests Sometimes, as an auditor I will check on the effectiveness of the procedures in the company. This will help to reduce the detection risk in the financial statements. In order to detect the risks that is involved in the procedures that are used by the management, then using the analytical procedures as substantive tests. Compare the similar data with some of the previous year’s financial data and other clients that are within the industry. Ratio analysis will also help to determine the data discrepancies that is available in the industry. This will be easily determine by displaying it through graphs. Trend analysis will also help the auditor to compute data for several years and years and compute for each period in order to determine the level of consistency of data.
When using analytical procedures as substantive tests, I must consider the following; The objectives of the procedures in arriving with results that are reliable The correlation of the information given and the extend of each supporting one another as aggregated information The compatibility of the information as a whole information and, The predictability of the information documented and provided by the management Note: The reliability of the information that is obtained from the use of analytical procedures as substantive tests depends on whether the auditor received the evidence from the internal or the external source. Information from the external parties is more reliable as compared to the internal source of information. Analytical Procedures as part of overall Review of the Audit When the audit is duly completed, then I need to use the analytical procedures to review the audit in order to make a conclusion as to whether the financial statements as a whole represents the truth of the entity. The conclusion that is derived from the results of the procedures must corroborate with each other in regard to the individual components of the audit. The using the
- Fall '11
- Accounting, Generally Accepted Accounting Principles, International Financial Reporting Standards, analytical procedures