Under analytical procedures is understood as an estimate financial information by analyzing likely relationships between financial and non-financial data. In addition, analytical procedures in an audit cover the study of identified fluctuations or relationships (correlations) that contradict other relevant information or differ materially from expected values 1 .
Analytical procedures are one of the main ways to obtain sufficient and appropriate audit evidence. As required by ISA 520 Analytical Procedures, the auditor is required to apply them throughout the audit engagement, from the planning stage.
In the process of analytical procedures, the financial information of the audited entity is compared:
In addition, the auditor should examine the ratios (relationships):
For the implementation of analytical procedures, it is allowed to use various methods from simple comparisons to complex analysis using sophisticated statistical techniques. The choice of certain methods and the degree of application is the area of professional judgment of the auditor.
When developing and performing substantive analytical procedures for an audit engagement, or in combination with detailed tests in accordance with SA 330, the auditor should:
Analytical substantive procedures are generally applicable to many transactions whose dynamics are predictable. The application of analytical procedures is based on the assumption that the relationship between different data exists and continues to exist insofar as there is no evidence to the contrary. However, the suitability of an analytical procedure depends on the auditor's assessment of its effectiveness in detecting misstatements. However, it should be remembered that different analytical procedures provide different levels of reliability.
In determining the reliability of data for the purposes of developing substantive analytical procedures, the auditor should consider:
When evaluating the reliability of the degree of accuracy of expectations to identify misstatements, the auditor should determine:
The amount of discrepancy established by the auditor between the amounts reflected in the accounting (financial) statements and the expected amounts, which is acceptable without additional research, depends, as a rule, on the materiality of the aspect on which the discrepancy was revealed and its compliance with the desired level of assurance, taking into account the likelihood that the misstatement on its own or when combined with other misstatements, could cause the financial statements to be materially misstated.
At the final stage audit the use of analytical procedures allows you to confirm or refute the conclusions made during the audit of individual segments or elements of the accounting (financial) statements. In addition, they provide an opportunity to identify problem areas that require additional procedures.
If analytical procedures reveal fluctuations or ratios (correlations) that do not correspond to other significant information or discrepancies from expected values by a significant amount, then the auditor should:
Additional audit procedures are required if management is unable to provide clarifications or if those clarifications, in combination with audit evidence relevant to management's responses, are not considered sufficient.
Target ISA 520 Analytical Procedures– establishing requirements for the application of analytical procedures during the audit.
Analytical procedures - analysis of significant indicators and trends, including the final study of interactions and relationships that are not consistent with other information and forecast values.
The main purpose of applying analytical procedures is to identify the presence or absence of unusual misrepresented facts and results of the entity's economic activities that identify areas of potential risk and require special attention of the auditor.
Another purpose of such procedures is to reduce the number of detailed procedures.
When carrying out analytical procedures, various methods are used - from comparisons to complex analysis using statistical methods.
Analytical procedures apply:
When planning an audit;
As substantive procedures;
When conducting a general review of the financial statements at the last stage of the audit.
These procedures can be applied to consolidated financial statements, component statements, individual elements of financial information.
Analytical procedures include considering an entity's financial information in comparison to:
With comparable information for previous periods (for example, comparing the amount of revenue for the current period with the amount of revenue in comparable prices for the previous year);
With the expected results (estimated, forecast indicators or indicators calculated by the auditor);
With similar industry information.
When implementing analytical procedures, the relationships are also considered:
Between various elements of financial information (for example, the amount of depreciation accrued on existing fixed assets cannot exceed their original or replacement cost);
Between financial and non-financial information.
The auditor's degree of confidence in the results of analytical procedures depends on the following factors:
Materiality of analyzed articles;
The scope of other procedures aimed at the same purposes;
Accuracy of predicting the expected results of analytical procedures;
Risk assessments of the control system and inherent risk.
The auditor should investigate significant changes or relationships identified as a result of analytical procedures that are inconsistent with other information or differ from forecast amounts.
The study is carried out in the form of drawing up requests to management, obtaining confirmation of his answers and considering the need to apply other audit procedures in case of unsatisfactory information obtained as a result of the above procedures.
Recommendations for carrying out these procedures, set out in Regulation on International Audit Practice 1000 "Interbank Confirmation Procedures", addressed to external auditors, internal bank auditors and bank inspectors. Bank managers may also be users of information obtained as a result of confirmations. Confirmation is a response to a request to confirm information contained in accounting records and is a valuable form of audit evidence obtained from an independent source. The sources are:
Other banks in the country where the audited bank is a resident;
Other banks in foreign countries;
Clients of the audited bank.
The recommendations of PMAP 1000 are mainly used for confirming the relationship of the audited bank with other banks, but in some cases these approaches can also be used for confirmation procedures between the bank and its customers that are not credit institutions.
Confirmations may be required for:
indicators balance sheet(balances on current, deposit, loan and other accounts);
Off-balance sheet items (guarantees, forward contracts on foreign currency, precious metals, securities, commitments to repurchase options, set-off agreements, commitments and pledges given and received);
Additional information (about zero balances on correspondent accounts; about correspondent accounts that were closed during the year before the date of confirmation; about the maturity of loans, interest rates, unused credit resources; provision or receipt of custody services, etc.).
When drafting the request, the auditor considers the following factors related to the audited party:
Significance of the size of account balances;
Scope of activity;
Degree of reliability internal control.
Then the wording of the request in the form of a request is selected:
Confirmation of the amounts specified in the request and other information;
On providing a breakdown of the amounts of balances and other information.
When carrying out interbank confirmation procedures, a request form is practiced in the form of an offer to send a response only if the information provided in the letter is incorrect or incomplete; it is important for the auditor to receive answers to all inquiries.
It is recommended that the auditor direct the inquiry to the head office of the bank, and not to any departments that are supposed to have the necessary information, since the auditor's assumptions may turn out to be incorrect. The request must be authorized by the verified (requesting) bank. Request letters may be sent at different times depending on the urgency of the information required. For a better understanding of the request, the letter includes:
Description of the nature of the requested article, transaction, information, as well as an indication of the amount and currency;
The date of occurrence and repayment of the obligation, the conditions for the operation.
ISA 520 addresses the auditor's use of analytical procedures, both substantive and pre-audit procedures, that assist the auditor in reaching a final conclusion on financial reporting and should be read in the context of ISA 200, The Independent Auditor's Overall Objectives and the Conduct of an Audit in Accordance with International Standards on Auditing.
Objectives of the auditor:
The term "analytical procedures" means the evaluation of financial information by analyzing the existence of possible relationships between financial and non-financial information. Analytical procedures also include consideration, if necessary, of identified dependencies that are inconsistent with other available information or differ materially from expected values.
In developing and performing substantive analytical procedures, the auditor must:
The auditor is required to develop and perform, towards the end of the audit, analytical procedures that will assist the auditor in forming an overall conclusion about whether the financial statements are consistent with his understanding of the entity.
If analytical procedures identify dependencies that are inconsistent with other available information or differ from expected values by a significant amount, the auditor should consider these inconsistencies, for which:
Audit evidence relating to management's representations can be obtained by evaluating those representations against the auditor's understanding of the entity and its environment and other audit evidence obtained during the audit.
The need to perform other audit procedures may arise when, for example, management is unable to provide an explanation, or this explanation, along with audit evidence regarding it, cannot be considered adequate.
ISA 530 is applied when the auditor decides to use audit sampling in performing audit procedures. The standard deals with the auditor's use of statistical and non-statistical sampling techniques in designing and constructing an audit sample, performing tests of controls or detailed tests, and evaluating the results of the application of sampling, and should be read in the context of ISA 200, The Independent Auditor's Overall Objectives and Conducting an Audit in Accordance with International Standards on Auditing. .
This ISA complements ISA 500, which addresses the auditor's responsibility to design and perform audit procedures in order to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion. ISA 500 provides guidance on the means available to the auditor for selecting items for testing, one of which is the audit sample.
The objective of the auditor when using audit samples is to provide a reasonable basis for drawing conclusions about the sampled population.
For the purposes of the MCA, the following terms are used.
Audit sample – the application of audit procedures to less than 100% of the items within the population being considered by the auditor in order to enable the auditor to draw conclusions about the entire population in such a way that all elements of the sample population have an equal probability of being selected.
Aggregate - The entire set of information on which the audit sample is based and on which the auditor wishes to draw conclusions.
Selective Risk – the risk that the auditor's conclusions based on the sample may differ from the conclusions that would be obtained by applying the same procedure to the entire population. Selective risk can lead to two kinds of erroneous conclusions:
Risk , non-sampling , - the risk that the auditor comes to the wrong conclusion for any reasons not related to selective risk.
Anomaly - a misstatement or bias that is clearly unrepresentative of the bias or bias present in the sample.
Sample element - the individual elements that make up the aggregate.
Statistical sampling - a sampling approach that has the following characteristics: random selection of elements of a sample population and the use of probability theory to evaluate the results of the sample, measuring the risk associated with the use of the sample. A sampling method that does not meet these requirements is considered non-statistical sample.
Stratification - the process of dividing a population into subpopulations, each of which is a group of sample items that share the same characteristics (often a cost).
Acceptable distortion - established by the auditor monetary value about which the auditor obtains a reasonable, appropriate level of assurance that the actual misstatement that exists in the aggregate does not exceed a specified monetary amount.
Acceptable level of deviations - the level of deviations from established internal control procedures established by the auditor for which the auditor obtains a reasonable, appropriate level of assurance that the actual level of deviations occurring in the aggregate does not exceed the acceptable level of deviations established by him.
In determining the type of audit sample, the auditor should consider the objectives of the audit procedures and the characteristics of the population from which the sample will be drawn.
The auditor is required to determine a sample size sufficient to reduce the sample risk to an acceptable level. low level so that each element in the sample has an equal probability of being selected.
The auditor is required to perform procedures appropriate to the purpose of the audit for each item selected. If an audit procedure is not applicable to a given selective element, then the auditor should perform it in relation to the element that replaces this one. If the auditor is unable to apply designed audit procedures or acceptable alternative procedures to a selected element, the auditor should consider that element as a deviation from the prescribed control procedure in the case of tests of controls or as a misstatement in the case of detailed tests.
The auditor should consider the nature and cause of any identified deviations or misstatements and evaluate their possible impact on the objective of the audit procedure and on other areas of the audit. The auditor must achieve high degree assurance by performing additional audit procedures to obtain sufficient appropriate audit evidence that the deviation or misstatement does not affect the remainder of the sample. For detailed tests, the auditor must, on the basis of the identified misstatements, make a prediction of misstatements for the sample population.
The auditor must evaluate:
