Week 3 DQs - dt - Week 3, DQ 1 How are analytical...

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Week 3, DQ 1 How are analytical procedures used in an audit engagement? What premise underlies the use of analytical procedures in auditing? What sources of information can an auditor use to develop expectations? Provide examples. Analytical procedures are an important component of an audit. The Auditing Standards Board issued SAS # 56 in 1988 that makes it a requirement for analytical procedures to be used in the audit process, while the auditor is planning the audit and the final review of a company’s financial statements. SAS #56 also advises the use of analytical procedures while the auditor is gathering evidence, as related to account balances. SAS #56 refers to analytical procedures as; evaluation of financial information made by a study of relationships among both financial and non-financial data". Analytical procedures are comprised of the following steps: expectation development, explanation generation, information search, and explanation evaluation. Step one is to develop and expected account balance for a specific account (like revenue from sales). Step two is to compare the expected balance to the actual balance. If there is not material difference between the expected and actual balance, then the conclusion can be made that there is audit evidence to support the account balance being audited. If there is a material difference, then the auditor has further investigating to do and must develop an explanation for the difference. The third step is for the auditor to search for information which can be used to evaluate the
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Week 3 DQs - dt - Week 3, DQ 1 How are analytical...

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