ISA 520: Analytical Procedures: Scope

ISA 520: Analytical Procedures
Scope
This International Standard on

It also deals with the auditor’s ISA 315 deals with the use of
Auditing (ISA) deals with the responsibility to perform analytical
auditor’s use of analytical analytical procedures as risk
procedures near the end of the audit that assessment procedures.
procedures as substantive assist the auditor when forming an overall
procedures (“substantive conclusion on the financial statements.
analytical procedures”).
Objective
To obtain relevant and reliable To design and perform analytical procedures near the end of the
audit evidence when using audit that assist the auditor when forming an overall conclusion as
substantive analytical procedures; to whether the financial statements are consistent with the
and auditor’s understanding of the entity.
What is Analytical Procedures
Evaluations of financial information through analysis of plausible relationships among both financial
and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified
fluctuations or relationships that are inconsistent with other relevant information or that differ from
expected values by a significant amount.
Analytical procedures include the consideration of comparisons Analytical procedures also include
of the entity’s financial information with, for example: consideration of relationships, for example:
•Comparable information for prior periods. • Among elements of financial information
•Anticipated results of the entity, such as budgets or forecasts, that would be expected to conform to a
or expectations of the auditor, such as an estimation of predictable pattern based on the entity’s
depreciation. experience, such as gross margin percentages.
•Similar industry information, such as a comparison of the •Between financial information and relevant
entity’s ratio of sales to accounts receivable with industry non-financial information, such as payroll costs
averages or with other entities of comparable size in the same to number of employees.
industry.
Steps / Requirements for performing substantive procedures as Analytical Procedures
A. Determine the suitability of particular substantive analytical procedures for given assertions, taking
account of the assessed risks of material misstatement and tests of details, if any, for the assertions;
how effective they will be in detecting particular type of material misstatements.
B. Evaluate the reliability of data and for these auditor needs to consider the following factors:
 Source of information
 Comparability of the information such as industry data and budget
 nature and relevance of information available; and
 controls over preparation of data.
C. Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently
precise to identify a misstatement that, individually or when aggregated with other misstatements, may cause
the financial statements to be materially misstated; For these auditor needs to consider the following factors:
 The accuracy with which the expected results of substantive analytical procedures can be predicted.
 The degree to which information can be disaggregated.
 The availability of the information, both financial and non-financial.
D. Determine the amount of any difference of recorded amounts from expected values that is acceptable without
further investigation
The auditor’s determination of the amount of difference from the expectation that can be accepted without further
investigation is influenced by materiality and the consistency with the desired level of assurance, taking account of
the possibility that a misstatement, individually or when aggregated with other misstatements, may cause the
financial statements to be materially misstated.
ISA 330 requires the auditor to obtain more persuasive audit evidence the higher the auditor’s assessment of risk.
Accordingly, as the assessed risk increases, the amount of difference considered acceptable without investigation
decreases in order to achieve the desired level of persuasive evidence.
E. Investigating Results of Analytical Procedures
If analytical procedures performed in accordance with this ISA identify fluctuations or relationships that are inconsistent
with other relevant information or that differ from expected values by a significant amount, the auditor shall investigate
such differences by:
(a) Inquiring of management and obtaining appropriate audit evidence relevant to management’s responses; and
(b) Performing other audit procedures as necessary in the circumstances.
The need to perform other audit procedures may arise when, for example, management is unable to provide an explanation,
or the explanation, together with the audit evidence obtained relevant to management’s response, is not considered
adequate.
Analytical Procedures that Assist When Forming an Overall Conclusion

The auditor shall design and perform analytical procedures near the end of the audit that assist the auditor when forming
an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of
the entity.
The conclusions drawn from the results of

The results of such analytical procedures may
analytical are intended to corroborate
identify a previously unrecognized risk of material
conclusions formed during the audit of
misstatement. In such circumstances, ISA 315 (Revised)
individual components or elements of the
requires the auditor to revise the auditor’s assessment
financial statements. This assists the
of the risks of material misstatement and modify the
auditor to draw reasonable conclusions
further planned audit procedures accordingly.
on which to base the auditor’s opinion.

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ISA 520: Analytical Procedures

This International Standard on

What is Analytical Procedures

(b) Performing other audit procedures as necessary in the circumstances.

Analytical Procedures that Assist When Forming an Overall Conclusion

The conclusions drawn from the results of

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