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    Chapter 8 Con .: Audit Planning and Analytical Procedures

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    احمد العربي
    The document discusses audit planning and analytical procedures in Chapter 8. It covers performing preliminary analytical procedures using key financial ratios and common-size financial statements. It also covers applying the concept of materiality to the audit, including making a preliminary judgment of materiality and determining performance materiality during the planning process. The document provides guidance on using materiality to evaluate audit findings by estimating misstatements and comparing them to the preliminary materiality judgment.

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    Chapter 8 Con .: Audit Planning and Analytical Procedures

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    احمد العربي
    50 views15 pages
    The document discusses audit planning and analytical procedures in Chapter 8. It covers performing preliminary analytical procedures using key financial ratios and common-size financial statements. It also covers applying the concept of materiality to the audit, including making a preliminary judgment of materiality and determining performance materiality during the planning process. The document provides guidance on using materiality to evaluate audit findings by estimating misstatements and comparing them to the preliminary materiality judgment.

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    Lecture 2

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    lecture 2

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    The document discusses audit planning and analytical procedures in Chapter 8. It covers performing preliminary analytical procedures using key financial ratios and common-size financial statements. It also covers applying the concept of materiality to the audit, including making a preliminary judgment of materiality and determining performance materiality during the planning process. The document provides guidance on using materiality to evaluate audit findings by estimating misstatements and comparing them to the preliminary materiality judgment.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    50 views15 pages

    Chapter 8 Con .: Audit Planning and Analytical Procedures

    Uploaded by

    احمد العربي
    The document discusses audit planning and analytical procedures in Chapter 8. It covers performing preliminary analytical procedures using key financial ratios and common-size financial statements. It also covers applying the concept of materiality to the audit, including making a preliminary judgment of materiality and determining performance materiality during the planning process. The document provides guidance on using materiality to evaluate audit findings by estimating misstatements and comparing them to the preliminary materiality judgment.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 15

    Chapter 8 Con .

    Audit planning and


    analytical procedures.

    1-1
    Dr . Mohamed Mousa
    4- Perform preliminary analytical
    procedures.

    Dr . Mohamed Mousa 8-2


    Perform preliminary analytical
    procedures
    auditors are required to perform preliminary
    analytical procedures as part of risk assessment.

    Key financial ratios, along with industry standards,


    are presented in Table 8-1.
    Common-size financial statements are also often used
    for one or more years for comparison as a
    preliminary analytical procedure.

    Dr . Mohamed Mousa 8-3


    Dr . Mohamed Mousa 8-4
    5- Apply the concept of materiality
    to the audit.

    Dr . Mohamed Mousa 8-5


    Materiality

    The fourth step in audit planning is to make a preliminary


    judgment about materiality for the audit.

    Auditing standards define materiality as the magnitude of


    misstatements that individually, or when aggregated with
    other misstatements, could reasonably be expected to
    influence the economic decision of users.

    There are five steps to applying materiality as noted in The


    next Figure. The first two are part of the planning process.

    Dr . Mohamed Mousa 8-6


    Dr . Mohamed Mousa 8-7
    6- Make a preliminary judgment about what
    amounts to consider material.

    Dr . Mohamed Mousa 8-8


    Materiality for financial statements
    as a whole

    Step 1 in Figure 8-5 is to set materiality for the


    financial statements as a whole as part of the
    planning process.

    Factors Affecting Preliminary Materiality Judgment:

     Materiality is a relative rather than an absolute


    concept.

     Benchmarks are needed for evaluating materiality.

     Qualitative factors also affect materiality.


    Dr . Mohamed Mousa 8-9
    Dr . Mohamed Mousa 8-10
    7- Determine performance materiality during
    audit planning.

    Dr . Mohamed Mousa 8-11


    Determine performance Materiality

    Step 2 in Figure 8-5 is to determine performance


    materiality, which can also be referred to as the allocation
    of the preliminary judgment about materiality to
    segments.
     PCAOB standards refer to performance materiality as
    tolerable misstatement.
     Performance materiality for an account is often set at 50–75
    percent of overall materiality.
     Auditors have three major difficulties when allocating
    materiality to balance sheet accounts:
    1. Auditors expect certain accounts to have more misstatements
    than others.
    2. Both overstatements and understatements must be considered.
    3. Relative audit costs affect the allocation.
    Dr . Mohamed Mousa
    8- Use materiality to evaluate
    audit findings.

    Dr . Mohamed Mousa 8-13


    Estimate misstatement and compare
    with preliminary judgment
    Auditors document all misstatements found for each audit
    segment. These may be known misstatements or likely
    misstatements.
    Known misstatements are those that the auditor can determine
    the amount of misstatement in the account.
    There are two types of likely misstatements:
    1. Differences between management’s and the auditor’s
    judgment about estimates of account balances
    2. Projections of misstatements based on the auditor’s tests of
    a sample

    The last three steps in applying materiality are illustrated in


    The next Table.
    Dr . Mohamed Mousa
    Dr . Mohamed Mousa 8-15

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