ANALYTICAL PROCEDURES

(PSA 520) analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or which deviate from predicted amounts Evaluations of financial information made by a study of plausible relationships among both financial and non-financial data

USE OF ANALYTICAL PROCEDURES IN AN AUDIT

PLANNING THE AUDIT
To understand the clients business To identify areas that may represent specific risks

SUBSTANTIVE TESTS
To obtain evidence to confirm individual account balances and company performance

OVERALL REVIEW
To identify unusual fluctuations that were not identified in the planning and testing phases of the audit To confirm conclusions reached with respect to the fairness of the financial statements

FACTORS CONSIDERED WHEN INTENDING TO PERFORM ANALYTICAL PROCEDURES AS SUBSTANTIVE PROCEDURES

Objective of the analytical procedures Nature of the entity and the degree to which information can be disaggregated Availability of information (financial and nonfinancial) Reliability of the information available Relevance of the information available Source of the information available Comparability of the information available Knowledge gained during previous audits

STEPS IN APPLYING ANALYTICAL PROCEDURES

Develop expectations regarding STEP 1 financial statements
Compare the expectations with the STEP 2 financial statements under audit
STEP 3

Investigate significant differences

DOCUMENTING THE AUDIT PLAN

is the final step in the planning process by preparing an overall audit plan, audit program and time budget

AUDIT PLAN
Overview of the expected scope and conduct of the audit Includes the description of the nature, timing and extent of risk assessment procedures, further audit procedures and other audit procedures required to be carried out for the engagement in order to comply with PSAs

AUDIT PROGRAM
is a list of procedures used to gather sufficient appropriate audit evidence

TWO TYPES OF AUDIT PROGRAMS

COMPLIANCE TEST AUDIT PROGRAM
Prepared when the auditor has identified controls which he/she plans to rely on (reliance approach)

SUBSTANTIVE TEST AUDIT PROGRAM

Prepared regardless of the approach taken (reliance or no reliance)

TIME BUDGET
An estimate of the time that will be spent in executing the audit procedures listed in the audit program Provides a basis for estimating audit fees and assists the auditor in assessing the efficiency of the assistants