S07-Analytical - ANALYTICAL PROCEDURES SECTION 7 What Are...

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ANALYTICAL PROCEDURES SECTION 7
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What Are Analytical Procedures? Evaluations of financial information made by a study of plausible relationships among financial and non-financial data Where used? 1. Planning 1. Substantive tests 1. Overall review
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Analytical involve comparisons of recorded amounts or ratios to expected amounts Expected amounts developed from a variety of sources Source of Expected Amount Example Financial information from prior periods Anticipated results, such as budgets or forecasts Relationships of elements of financial information within the period Similar information regarding the industry in which the entity operates
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Nature of Analytical Procedures Three common types: 1. Trend analysis: The analysis of the change of an acount over time 1. Ratio analysis: A comparison of relationships among financial statement accounts 1. Reasonableness Tests: Computations usually involving non-financial data used to estimate an account balance
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1. Trend Analysis Most common approach By analyzing changes in an account balance over past accounting periods The causal approach Requires auditor to develop expected results The diagnostic approach Compare the current amount to the trend to see if the current amount appears to be acceptable
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Diagnostic Approach Example 200X 200Y Change % Change Expected Change Explanation Sales 1,000,000 1,115,000 115,000 11.50 4.00 1 Cost of Sales 700,000 772,000 72,000 10.29 4.00 2 Depreciation 80,000 92,000 12,000 15.00 4.00 3 Sales commissions 50,000 66,000 16,000 32.00 4.00 4 Office Supplies 10,000 10,400 400 4.00 4.00 5 Advertising
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S07-Analytical - ANALYTICAL PROCEDURES SECTION 7 What Are...

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