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Audit procedures

Analytical Procedures as substantive evidence
ISA 520 states that analytical procedures must be used at the planning
stage to identify risks, and at the completion stage of the audit as a final
review of the FS.
They may also be used at the substantive stage when the auditor is auditing
the draft financial statements.
Analytical procedures are not just the comparison of one year with another.
AP’s can be used in the following ways:
•
Ratio analysis
•
Trend analysis•
In order to use analytical procedures the following process should be
followed:
•
Create your own expectation of what you think the figure should be
•
Compare your expectation to the actual figure
•
– Example 1 create
an expectation of payroll costs for the year by
taking last year’s cost and inflating for payrise and change in staff
numbers – proof in total.
– Example 2 – calculate the receivables day ratio and compare it
with prior year and credit terms given to customers. If the figure is
higher than expected it may indicate overstatement of receivables
– ratio analysis.
– Example 3 – plot monthly sales data for the prior year and plot
against the current year and investigate any unusual trends. You
would expect the business to follow the same pattern month on
month especially if they have a seasonal business – trend analysis.
– Example 4 – using the client’s depreciation policy, recompute
the
expected depreciation charge and compare it with the actual
depreciation charge. If there is a significant difference it should be
investigated – proof in total.
Investigate any significant differences

 Proof in total

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