Chapter _5, Analytical Procedures

Chapter _5, Analytical Procedures - ACCY 360/560 Assurance...

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ACCY 360/560 Assurance Services “Analytical Procedures” Chapter #5 (Continued) I. Analytical procedures (AICPA definition) "evaluations of financial information made by a study of plausible relationships among both financial and non-financial data" A. Analytical procedures involve analyzing trends and interrelationships – the “key” is developing a meaningful expectation by which to judge the reasonableness of the client’s recorded amount B. Analytical procedures can range from simple comparisons of account balances, to ratio analysis , to complex mathematical modeling comparisons of dollar balances or ratios might be made for a given company over time or to the corresponding amounts or ratios for other companies within the same industry category (or to a single major competitor) C. Analytical procedures serve 3 distinct purposes: (1) a tool for planning; (2) as substantive evidence; and (3) as a final review 1. Required in audit planning – Two major purposes (1) helps the auditor understand client's activities; and (2) helps the auditor identify unusual transactions and events (where misstatements may be more likely) a. Primarily based on financial data, but may use non- financial data, too (for example, “sales per square foot” is a widely used benchmark in the retail industry) b. Primarily uses data aggregated at a high level (which tends to
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Chapter _5, Analytical Procedures - ACCY 360/560 Assurance...

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