Auditing and Assurance Standards Council

Auditing and Assurance Standards Council

Philippine Standard on Auditing 520 (Redrafted)

ANALYTICAL PROCEDURES
Philippine Standard on Auditing 520 (Redrafted)
Conforming Amendments
ANALYTICAL PROCEDURES
PSA 315
Conforming (Redrafted), Identifying and Assessing the Risks
Amendments
of
PSAMaterial Misstatement
315 (Redrafted), Through
Identifying and Assessing the Risks Understanding the
Entity
of Materialand Its Environment
Misstatement Through Understanding the
Entity and Its Environment
 ANALYTICAL PROCEDURES
(Effective for audits of financial statements for periods beginning on or after December 15, 2009)

CONTENTS

Paragraph
Philippine
IntroductionStandard on Auditing 520 (Redrafted)
Scope of this PSA...............................................................................................
ANALYTICAL PROCEDURES 1
Effective Date..................................................................................................... 2
Conforming Amendments
Objectives........................................................................................................... 3
PSA 315 (Redrafted), Identifying and Assessing the Risks
Definition............................................................................................................ 4
of Material Misstatement Through Understanding the
Requirements
Entity and Its Environment
Substantive Analytical Procedures...................................................................... 5
Analytical Procedures that Assist When Forming an Overall Conclusion.......... 6
Investigating Results of Analytical Procedures.................................................. 7
Application and Other Explanatory Material
Nature of Analytical Procedures........................................................................ A1-A3
Substantive Analytical Procedures..................................................................... A4-A16
Analytical Procedures that Assist When Forming an Overall Conclusion........ A17-A19
 Introduction
Scope of this PSA
PSA  520:    Analy-cal  Procedures  –  Scope  of  PSA  
1. This Philippine Standard on Auditing (PSA) deals with the auditor’s use of
analytical procedures as substantive procedures (“substantive analytical
procedures”), and as procedures near the end of the audit that assist the auditor
when forming an overall conclusion on the financial statements. The use of
analytical procedures as risk assessment procedures is dealt with in PSA 315
(Redrafted).1 PSA 330 (Redrafted) includes requirements and guidance regarding
the nature, timing and extent of audit procedures in response to assessed risks;
2
these audit procedures may include substantive analytical procedures.

Effective
PSA  3Date
30  The  Auditor’s  Responses  to  Assessed  Risks    

2. This PSA is effective for audits of financial statements for periods beginning on or
after December 15, 2009.
 on or after December 15, 2004)

CONTENTS

Paragraphs

Introduction PHILIPPINE STANDARD ON AUDITING 330 1–3

OverallThe   Auditor’s  Procedures  in  Response  to  Assessed  Risks    

Responses 4–6

THE AUDITOR’S
Audit Procedures Responsive PROCEDURES
to Risks of Material
Misstatement at the Assertion Level 7–9
IN RESPONSE TO ASSESSED RISKS
Considering the Nature, Timing, and Extent of Further
Audit Procedures 10–21

Tests of Controls 22–47

Substantive Procedures 48–64

Adequacy of Presentation and Disclosure 65

Evaluating the Sufficiency and Appropriateness of 66–72

Audit Evidence Obtained

Documentation 73

Effective Date 74

Acknowledgment 75-76
 2. This PSA is effective for audits of financial statements for periods beginning on or
2. This PSA is effective for audits of financial statements for periods beginning on or
after December 15, 2009.
after December 15, 2009.

Objectives
Objectives
PSA  520:    Analy-cal  Procedures  –  Objec-ves  
3. 3. TheThe
objectives of the
objectives of auditor are:are:
the auditor
(a) To obtain relevant and reliable audit evidence when using substantive
(a)analytical
To obtain relevant and
procedures; and reliable audit evidence when using substantive
analytical procedures; and
(b) To design and perform analytical procedures near the end of the audit that
(b)assistTothedesign
auditor
andwhen forming
perform an overall
analytical conclusion
procedures as toend
near the whether
of the the
audit that
financial statements are consistent with the auditor’s understanding of the
assist the auditor when forming an overall conclusion as to whether the
entity.
financial statements are consistent with the auditor’s understanding of the
Definition entity.
4. Definition
For the purposes of the PSAs, the term “analytical procedures” means evaluations
of financial information through analysis of plausible relationships among both
 financial statements are consistent with the auditor’s understanding of the
entity.

Definition
PSA  520:    Analy-cal  Procedures  –  Defini-on  
4. For the purposes of the PSAs, the term “analytical procedures” means 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. (Ref: Para. A1-A3)

1
PSA 315 (Redrafted), “Identifying and Assessing the Risks of Material Misstatement Through
Understanding the Entity and Its Environment,” paragraphs 6 and A6a-A8a.
Requirements
Requirements
Substantive Analytical Procedures
Substantive Analytical
PSA  520:   ProceduresAnaly-cal  Procedures  
 Substan-ve  
5. When designing and performing substantive analytical procedures, either alone or
5. When
in designingwith
combination and tests
performing substantive
of details, analytical
as substantive procedures,
procedures either alone
in accordance withor
in combination
PSA with tests
330 (Redrafted), 3 of details, as substantive procedures in accordance with
3 the auditor shall: (Ref: Para. A4-A5)
PSA 330 (Redrafted), the auditor shall: (Ref: Para. A4-A5)
(a) Determine the suitability of particular substantive analytical procedures for
(a) Determine the suitability of particular substantive analytical procedures for
given assertions, taking account of the assessed risks of material
given assertions, taking account of the assessed risks of material
misstatement and tests of details, if any, for these assertions; (Ref: Para. A6-
misstatement and tests of details, if any, for these assertions; (Ref: Para. A6-
A11)
A11)
(b)
(b) Evaluate
Evaluate the the reliability
reliability of of data
data fromfrom which
which the the auditor’s
auditor’s expectation
expectation of
of
PSA  330  The  recorded
Auditor’s  amounts or
recorded amounts or tratios
Responses  
ratios isis developed,
o  Assessed   Risks     taking account of source,
developed, taking account of source,
comparability,
comparability, and and nature
nature and and relevance
relevance of of information
information available,
available, and
and
controls
controls overover preparation;
preparation; (Ref: (Ref: Para.
Para. A12-A14)
A12-A14)

(c) Develop an expectation of recorded amounts or ratios and evaluate whether

 in combination with tests of details, as substantive procedures in accordance with
PSA 330 (Redrafted),3 the auditor shall: (Ref: Para. A4-A5)
Requirements
(a) Determine the suitability of particular substantive analytical procedures for
Substantive Analytical Procedures
given assertions, taking account of the assessed risks of material
PSA  520:  misstatement
 Substan-ve   Analy-cal  
and tests Procedures  
of details, if any, for these assertions; (Ref: Para. A6-
A11)
5. When designing and performing substantive analytical procedures, either alone or
in(b)combination
Evaluatewith
the tests of details,
reliability of as substantive
data from procedures
which the in accordance
auditor’s withof
expectation
3
PSA 330 (Redrafted),
recorded amountsthe or
auditor
ratiosshall: (Ref: Para.taking
is developed, A4-A5)account of source,
comparability, and nature and relevance of information available, and
(a) controls over
Determine preparation;
the suitability (Ref: Para.
of particular A12-A14)
substantive analytical procedures for
(c) given assertions,
Develop taking account
an expectation of the assessed
of recorded amounts risks of material
or ratios and evaluate whether
misstatement and tests
the expectation of details, ifprecise
is sufficiently any, fortothese assertions;
identify (Ref: Para.that,
a misstatement A6-
A11)
individually or when aggregated with other misstatements, may cause the
financial statements to be materially misstated; and (Ref: Para. A15)
(b)
(d) Evaluate
Determinethe reliability
the amount of of
dataanyfrom which theofauditor’s
difference recordedexpectation of expected
amounts from
recorded amounts
values that or ratios iswithout
is acceptable developed, taking
further account of source,
investigation as required by
comparability,
paragraph 7. and nature
(Ref: Para.and
A16)relevance of information available, and
controls over preparation; (Ref: Para. A12-A14)
Analytical Procedures that Assist When Forming an Overall Conclusion
 A11)
Requirements
(b) Evaluate the reliability of data from which the auditor’s expectation of
recorded amounts or ratios is developed, taking account of source,
Substantive Analytical Procedures
comparability,
PSA  520:   and nature
 Substan-ve   and relevancePofrocedures  
Analy-cal   information available, and
controls over preparation; (Ref: Para. A12-A14)
5. When designing and performing substantive analytical procedures, either alone or
in(c)combination
Develop anwith tests of details,
expectation as substantive
of recorded amountsprocedures in accordance
or ratios and with
evaluate whether
PSA 330 expectation 3isthe
the (Redrafted), auditor shall:
sufficiently (Ref:to Para.
precise A4-A5)
identify a misstatement that,
individually or when aggregated with other misstatements, may cause the
financial statements
(a) Determine to beofmaterially
the suitability particularmisstated;
substantiveandanalytical
(Ref: Para. A15) for
procedures
given assertions, taking account of the assessed risks of material
(d) Determine the amount of any difference of recorded amounts from expected
misstatement
values that is and tests of without
acceptable details, iffurther
any, for these assertions;
investigation (Ref: by
as required Para. A6-
A11)
paragraph 7. (Ref: Para. A16)

(b) Procedures
Analytical Evaluate thethat
reliability
Assist of data Forming
When from whichanthe auditor’s
Overall expectation of
Conclusion
recorded amounts or ratios is developed, taking account of source,
6. The auditor shall design
comparability, and perform
and nature analytical
and relevance of procedures
informationnear the endand
available, of the
audit that assist the auditor when forming an overall conclusion as to whether the
controls over preparation; (Ref: Para. A12-A14)
financial statements are consistent with the auditor’s understanding of the entity.
 controls over preparation; (Ref: Para. A12-A14)

Requirements
(c) Develop an expectation of recorded amounts or ratios and evaluate whether
the expectation is sufficiently precise to identify a misstatement that,
Substantive Analytical
individually Procedures
or when aggregated with other misstatements, may cause the
PSA  520:    Substan-ve   Analy-cal   Procedures  
financial statements to be materially misstated; and (Ref: Para. A15)
5. When designing and performing substantive analytical procedures, either alone or
in combination with tests of details, as substantive procedures in accordance with
(d) 330
PSA Determine the amount
(Redrafted),3 of anyshall:
the auditor difference of recorded
(Ref: Para. A4-A5)amounts from expected
values that is acceptable without further investigation as required by
paragraph 7.the(Ref:
(a) Determine Para. A16)
suitability of particular substantive analytical procedures for
given assertions, taking account of the assessed risks of material
misstatement
Analytical Procedures andAssist
that tests of details,
When if any, an
Forming for Overall
these assertions; (Ref: Para. A6-
Conclusion
A11)
6. The auditor
(b) shall
Evaluate thedesign and ofperform
reliability analytical
data from procedures
which the auditor’snear the end ofofthe
expectation
audit recorded
that assistamounts
the auditor whenisforming
or ratios an overall
developed, taking conclusion as to whether the
account of source,
financial statements and
comparability, are consistent
nature andwith the auditor’s
relevance understanding
of information of the
available, andentity.
(Ref: controls
Para. A17-A19)
over preparation; (Ref: Para. A12-A14)

(c) Develop
Investigating Resultsanofexpectation
Analytical ofProcedures
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
 ***
*** ***
***
Application and Other Explanatory Material
Application and Other Explanatory Material
Application
Application and and Other
Other Explanatory
Explanatory Material
Material
Application
Nature and Procedures
of Analytical Other Explanatory Material
(Ref: Para. 4)
Nature of Analytical Procedures (Ref: Para. 4)
Nature Nature of Analytical
of AnalyticalProcedures
Procedures (Ref:(Ref:Para.Para.
4) 4)
A1.
Nature Analytical procedures
of Analytical include(Ref:
Procedures the consideration
Para. 4) of comparisons of the entity’s
A1.A1.  Analytical financial procedures
 Analy-cal   include
procedures  
information with, the
include  
for consideration
example: the   of comparisons of the entity’s
A1.      A1. Analytical
     financial procedures
Analytical
information
   considera-on   cinclude
procedures
of  with, for the
include consideration
theoconsideration
example:
omparisons   of comparisons
f  the  en-ty   of theofentity’s
of comparisons the entity’s
A1. financial Analytical
financial procedures
information
information include
with, theexample:
forith,  
with, example:
for consideration of comparisons of the entity’s
               financial   informa-on   w for  example:  
• financial
Comparable
informationinformation
with, forforexample:
prior periods.
• Comparable information for prior periods.
• •Comparable Comparable information
informationfor prior periods.
for prior periods.
• • Anticipated
Comparableresults of the entity,
information for prior suchperiods.
as budgets or forecasts, or expectations
• Anticipated of the results
auditor, such ofastheanentity,
estimationsuch of as depreciation.
budgets or forecasts, or expectations
• •Anticipated resultsresults
of theofentity, such suchas budgets or forecasts, or expectations
of theAnticipated
auditor, such the entity,
as an estimation as budgets
of depreciation. or forecasts, or expectations
• of the ofauditor,
Anticipated such
results
the auditor, asofanthe
such asestimation
anentity, of depreciation.
such
estimation asofbudgets or forecasts, or expectations
depreciation.
• Similar of the industry
auditor, suchinformation, such as aofcomparison
as an estimation depreciation.of the entity’s ratio of
• Similar industry information, suchindustry
as a comparison oforthe entity’s ratio of of
• •Similar salesSimilar
toindustry
accounts
industry receivable
information,
information, with
such as
such a averages
comparison
as a of
comparison with
the
of other
entity’s
the entities
ratio ratio
entity’s of of
sales to accounts receivable with industry averages or with other entities of
comparable
• sales to accounts
Similar
sales size receivable
industry
to accountsininformation,
thereceivable
samewith industry.
industry
such
with averages
asindustry
a comparison or of
averages with other
thewith
or entities
entity’s
other ratioofof of
entities
comparable size in the same industry.
comparable
sales size insize
to accounts
comparable the insame
receivable
the sameindustry.
withindustry.
industry averages or with other entities of
A2. Analytical procedures
comparable size also
in include
the same consideration
industry. of relationships, for example:
A2. Analytical
A2. Analytical procedures
procedures also also include
include consideration
consideration of of relationships,
relationships, for example:
A2. Analytical procedures also include consideration of relationships,example: for for example:
A2. • Analytical Amongprocedures
elements ofalso financial
includeinformation
consideration thatofwould be expected
relationships, to conform
for example:
• Among elements of financial information that would be expected to conform
 (d) values that the
Determine is acceptable
amount ofwithout further investigation
any difference as required
of recorded amounts frombyexpected
paragraph
values that7.is(Ref: Para. A16)
acceptable without further investigation as required by
paragraph 7. (Ref: Para. A16)
Analytical Procedures that Assist When Forming an Overall Conclusion
Analytical Procedures that Assist When Forming an Overall Conclusion
6. The auditor shall design and perform analytical procedures near the end of the
6. 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
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.
financial statements are consistent with the auditor’s understanding of the entity.
(Ref:
(Ref: Para.
Para. A17-A19)
A17-A19)

Investigating Results of Analytical Procedures

7. If analytical procedures performed in accordance with this PSA identify

fluctuations or
fluctuations or relationships
relationships that
that are
are inconsistent
inconsistent with
with other
other relevant
relevant information
information
or that
or that differ
differ from
from expected
expected values
values by
by aa significant
significant amount,
amount, the
the auditor
auditor shall
shall
investigate such differences by:
investigate such differences by:
(a) Inquiring of management and obtaining appropriate audit evidence relevant
(a) Inquiring of management
to management’s andand
responses; obtaining appropriate audit evidence relevant
to management’s responses; and
(b) Performing other audit procedures as necessary in the circumstances. (Ref:
Para. A20- A21)
(b) Performing other audit procedures as necessary in the circumstances. (Ref:
 6. audit that statements
financial
The auditor assist
shallthedesign
auditor
andwhen
are consistentforming
performwith theanauditor’s
analyticaloverall conclusion
understanding
procedures asend
near the toofwhether
of the
thetheentity.
financial
(Ref: thatstatements
audit Para. A17-A19)
assist are consistent
the auditor with the
when forming anauditor’s understanding
overall conclusion of the entity.
as to whether the
(Ref: Para.statements
financial A17-A19)are consistent with the auditor’s understanding of the entity.
(Ref: Para.
Investigating ResultsA17-A19)
of Analytical Procedures
Investigating Results of Analytical Procedures
7.Investigating Results
If analytical of Analytical
procedures Procedures
performed in accordance with this PSA identify
7. Iffluctuations
analytical procedures
or performed
relationships that areininconsistent
accordance with
with other
this PSA identify
relevant information
7. If analytical
fluctuations procedures performed in accordance with this PSA identify
that differor
orfluctuations relationships
from expected that
valuesarebyinconsistent
a with
significant other relevant
amount, the auditorinformation
or relationships that are inconsistent with other relevant information shall
or that differsuch
investigate fromdifferences
expected values
by: by a significant amount, the auditor shall
or that differ from expected values by a significant amount, the auditor shall
investigate such differences by:
investigate such differences by:
(a) Inquiring of management and obtaining appropriate audit evidence relevant
(a)
(a) Inquiring
toInquiring of
of management
management’s andand
responses;
management and obtainingappropriate
obtaining appropriateaudit
auditevidence
evidence relevant
relevant
totomanagement’s
management’s responses; and
responses; and
(b) Performing other audit procedures as necessary in the circumstances. (Ref:
(b)
(b) Performing
Performing
Para. other
other audit procedures
A20- A21) proceduresasasnecessary
necessaryininthethecircumstances.
circumstances. (Ref:
(Ref:
Para.
Para.A20-
A20- A21)
A21)
3
3 3PSA 330 (Redrafted), paragraph 20.
PSA 330 (Redrafted), paragraph 20.
PSA 330 (Redrafted), paragraph 20.

3 3
3
 • Anticipated results of the entity, such as budgets or forecasts, or expectations
***
of the auditor, such as an estimation of depreciation.

• Similar
Application and Other Explanatory
industry information,Material
such as a comparison of the entity’s ratio of
sales to accounts receivable with industry averages or with other entities of
Nature of Analytical Procedures (Ref: Para. 4)
comparable size in the same industry.
A1. Analytical procedures include the consideration of comparisons of the entity’s
A2. financial information
Analytical with,
procedures alsoforinclude
example:
consideration of relationships, for example:
• Comparable information for prior periods.
• Among elements of financial information that would be expected to conform
• Anticipated resultspattern
to a predictable of the entity,
basedsuch as budgets
on the entity’s orexperience,
forecasts, orsuch
expectations
as gross
of the auditor, such as an estimation of depreciation.
margin percentages.
• Similar industry information, such as a comparison of the entity’s ratio of
• sales to accounts
Between receivable
financial with industry
information averages
and relevant or with otherinformation,
non-financial entities of such
comparable size in the same industry.
as payroll costs to number of employees.
A2. Analytical procedures also include consideration of relationships, for example:
A3. Various methods may be used to perform analytical procedures. These methods
•rangeAmong elements of financial
from performing information that
simple comparisons would be expected
to performing complexto analyses
conform using
to a predictable pattern based on the entity’s experience, such as gross
advanced
marginstatistical techniques. Analytical procedures may be applied to
percentages.
 • Among elements of financial information that would be expectedPSA 520 (Redrafte
to conform
to a predictable pattern based on the entity’s experience, such as gross
margin percentages. ***

• Between
Application andfinancial
Otherinformation and relevant
Explanatory non-financial information, such
Material
as payroll costs to number of employees.
Nature of Analytical Procedures (Ref: Para. 4)

A3.
A1. Various methods
Analytical may be used
procedures to perform
include analytical procedures.
the consideration These methods
of comparisons of the entity’s
range from information
financial performing simple
with,comparisons
for example:to performing complex analyses using
advanced
• statistical techniques.
Comparable Analytical
information procedures
for prior may be applied to
periods.
consolidated financial statements, components and individual elements of
• Anticipated results of the entity, such as budgets or forecasts, or expectati
information.
of the auditor, such as an estimation of depreciation.

Substantive
• Analytical Procedures
Similar industry (Ref: Para. 5)
information, such as a comparison of the entity’s ratio of
sales to accounts receivable with industry averages or with other entities o
comparable size in the same industry.
A4. The auditor’s substantive procedures at the assertion level may be tests of details,
A2. Analytical procedures also include consideration of relationships, for example:
substantive analytical procedures, or a combination of both. The decision about
which
• audit procedures
Among elements to perform, including
of financial whether tothat
information usewould
substantive
be expected to confo
analytical
to aprocedures,
predictableis based on the
pattern auditor’s
based on the judgment
entity’sabout the expected
experience, such as gross
margin percentages.
effectiveness and efficiency of the available audit procedures to reduce audit risk
at• the assertion
Between level to an acceptably
financial low level.
information and relevant non-financial information, suc
as payroll costs to number of employees.
A3. Various methods may be used to perform analytical procedures. These methods
PSA 520 (Redrafted)
range from performing simple comparisons to performing complex analyses using
advanced statistical techniques. Analytical procedures may be applied to
***
consolidated financial statements, components and individual elements of
information.
Application and Other Explanatory Material
Substantive Analytical
Nature of Analytical Procedures
Procedures (Ref:(Ref:
Para.Para.
4) 5)

A1. The
A4. Analytical procedures
auditor’s include
substantive the consideration
procedures of comparisons
at the assertion of the
level may beentity’s
tests of details,
financial information with, for example:
substantive analytical procedures, or a combination of both. The decision about
which
• audit procedures
Comparable to perform,
information for priorincluding
periods. whether to use substantive
analytical procedures, is based on the auditor’s judgment about the expected
• Anticipated results of the entity, such as budgets or forecasts, or expectations
effectiveness and efficiency
of the auditor, such as anofestimation
the available audit procedures to reduce audit risk
of depreciation.
at the assertion level to an acceptably low level.
• Similar industry information, such as a comparison of the entity’s ratio of
sales to accounts receivable with industry averages or with other entities of
A5. The auditor may inquire
comparable of same
size in the management
industry. as to the availability and reliability of
information needed to apply substantive analytical procedures, and the results of
A2. Analytical
any procedures
such analytical also include
procedures consideration
performed of relationships,
by the entity. It mayforbeexample:
effective to use
analytical
• Amongdataelements
preparedof by management,
financial provided
information the be
that would auditor is satisfied
expected that such
to conform
data istoproperly prepared.
a predictable pattern based on the entity’s experience, such as gross
margin percentages.

• Between financial information and relevant non-financial information, such

as payroll costs to number of employees.
4
 substantive analytical procedures, or a combination of both. The(Redrafted)
PSA 520 decision about
which audit procedures to perform, including whether to use substantive
analytical procedures, is based on the auditor’s judgment about the expected
***
effectiveness and efficiency of the available audit procedures to reduce audit risk
at the assertion level to an acceptably low level.
Application and Other Explanatory Material
A5. ofTheAnalytical
Nature auditor may inquire of
Procedures management
(Ref: Para. 4) as to the availability and reliability of
information needed to apply substantive analytical procedures, and the results of
A1. Analytical procedures include the consideration of comparisons of the entity’s
any suchinformation
financial analytical with,
procedures performed by the entity. It may be effective to use
for example:
analytical data prepared by management, provided the auditor is satisfied that such
•
data Comparable information for prior periods.
is properly prepared.
• Anticipated results of the entity, such as budgets or forecasts, or expectations
of the auditor, such as an estimation of depreciation.

• Similar industry information, such as a comparison of the entity’s ratio of

sales to accounts receivable with industry averages or with other entities of 4
comparable size in the same industry.

A2. Analytical procedures also include consideration of relationships, for example:

• Among elements of financial information that would be expected to conform

to a predictable pattern based on the entity’s experience, such as gross
margin percentages.

• Between financial information and relevant non-financial information, such

as payroll costs to number of employees.
 Auditors  perform  Analy-cal  Procedures  
   1.  Formulate  expecta-ons  regarding  F/S  
Financial   -­‐ Comparable  informa-on  for  prior  periods’  F/S  
Informa-on   -­‐ An-cipated  results  (budgets  or  forecasts)  
-­‐ Industry  informa-on  (benchmarking,  industry  averages)  
Rela-onships   -­‐ Elements  of  financial  informa-on  with  predictable  paUern  
             (ex.  Gross  margin)  
-­‐ Between  financial  &  non-­‐financial  informa-on  
             (ex.    Payroll:  cost  to  number  of  employees)  

   2.    Compare  the  expecta-ons  with  F/S  under  audit  

   3.    Inves-gate  significant  differences  between  the  expected    
                         and  the  recorded  amounts.  
 Typical  Analy-cal  Procedures  
   1.  Trend  Analysis;  2.    Ra-o  Analysis  
 3.    Test  of  reasonableness  
The  auditor  uses  analy.cal  procedures  to:  
a)  Planning  tool:  Obtain  understanding  of  the  en-ty  &  its  
environment;  Iden-fy  areas  that  may  represent  specific  risks  
b)  Substan.ve  test:    Obtain  evidence  to  confirm  individual          
account  balances;  Detect  material  misstatement  
c)  Overall  Review:    Iden.fy  unusual  fluctua.ons  iden-fied  in  
the  planning  &  tes-ng  phases  of  the  audit;  Form  an  overall  
conclusion  about  the  financial  statements  
Analy-cal  procedures  are  substan-ve  procedures  that  may  be  used  to  
provide  evidence  about  specific  accounts  and  classes  of  transac-ons.  

a.  Comparisons  made  in  performing  analy-cal  procedures  include:  

•  Comparisons  with  prior  years'  data.  

•  Comparisons  with  budgets  and  forecasts.  
•  Comparisons  with  industry  sta-s-cs.  
•  Comparisons  with  nonfinancial  data.  
•  Comparisons  of  predictable  rela-onships  based  on  past  history  
Analy-cal  procedures  are  substan-ve  procedures  that  may  be  used  to  
provide  evidence  about  specific  accounts  and  classes  of  transac-ons.  

b.  Analy-cal  procedures  may  be  performed:  

1.  During  risk  assessment  to  iden-fy  items  that  require  more  
audit  aUen-on  (required  analy-cal  procedures).  
2.  Throughout  the  audit  as  a  substan-ve  procedure  for  accounts  or    
             classes  of  transac-ons.  
3.  Near  the  end  of  the  audit  to  corroborate  audit  evidence    
           obtained  during  the  audit  to  assist  the  auditor  in  drawing            
           reasonable  conclusions  (required  analy-cal  procedures).  
Stages   Risk   Risk     Conclusion  &  
Assessment   Response   Repor.ng  
Analy.cal   Preliminary   Substan-ve   Concluding  
Procedures  
Objec.ve   Obtain   Detect  material   Form  a  conclusion  that  
understanding  of   misstatements   F/S  are  consistent  with  
the  en-ty  &  its   the  auditor’s  
environment   understanding  
Result   Iden-fy  and   Obtain  evidence   Conclude  whether  F/S  
assess  ROMM.   whether  an   are  consistent  with  
asser-on  is  free  of   auditor’s  understanding  
material   or  iden-fy  previously  
misstatement.   unrecognized  ROMM.  
Stages   Risk   Risk     Conclusion  &  
Assessment   Response   Repor.ng  
Required?   YES   NO  Substan-ve   YES  
test  of  details,  
more  effec-ve  than  
analy-cal,  may  be  
performed  instead.  
AFen.on   YES   NO   YES  
direc.ng?    because  it  is   Because  it  is   Because  it  is  applied  at  
applied  at  whole   focused  on   whole  Financial  
F/S  level.     asser-on  level  as   Statements  
risk  response.  
True  or  false  
1.  The  decision  about  which  audit  
procedures  to  perform,  including  
whether  to  use  substan-ve  analy-cal  
procedures,  is  based  on  the  auditor’s  
judgment    
2.  Substan-ve  analy-cal  procedures  are  
         generally  more  applicable  to  small  
         volumes  of  transac-ons  that  tend  to  
         be  predictable  over  -me.  PSA  520  A6  
3.  The  determina-on  of  the  suitability  of  par-cular  
substan-ve  analy-cal  procedures  is  influenced  by  the  
nature  of  the  asser-on  and  the  auditor’s  assessment  of  
the  risk  of  material  misstatement.    
Example:  If  controls  over  sales  order  processing  are  
weak,  the  auditor  may  place  more  reliance  on  tests  of  
details  rather  than  on  substan-ve  analy-cal  procedures  
for  asser-ons  related  to  receivables.  PSA  520  A9  
4.  The  need  to  perform  other  audit  
         procedures  may  arise  when,  for  example,  
         management  is  unable  to  provide  an  
         explana-on  with  the  audit  evidence  
         obtained  relevant  to  management’s  
           response,  is  considered  adequate.    
5.  A  basic  premise  underlying  analy-cal  
         procedures  is  the  analysis  of  the  
         implausible  rela-onships  among  both  
         financial  and  non-­‐financial  data.  PSA520,  Sec4  
6.  Par-cular  substan-ve  analy-cal  
         procedures  may  also  be  considered  
         suitable  when  tests  of  details  are  
         performed  on  the  same  asser-on.    
.    
7.  It  may  be  effec-ve  to  use  analy-cal  data  
         prepared  by  management,  provided  the  
         auditor  is  sa-sfied  that  such  data  is  
         properly  prepared.    PSA  520  A5  
8.  “Different  types  of  analy-cal  procedures      
           provide  the  same  levels  of  assurance    
           the  source  of  data  or  informa-on  is  the  
           same  .  PSA  520  A8    
.    
9.  Analy-cal  procedures  also  encompass  
       such  inves-ga-on  as  is  necessary  of  
       iden-fied  fluctua-ons  or  rela-onships  
       that  are  consistent  with  other  relevant  
       informa-on  or  that  differ  from  expected  
       values  by  a  significant  amount.  PSA  520  S4  
10.  Risk  assessment  procedures  by  
           themselves  do  not  provide  sufficient    
             appropriate    audit  evidence  on  which  to  
             base  the  audit  opinion.    
11.  As  a  form  of  analy-cal  procedure,  trend  
analysis    is  based  on  the  assump-on  that  
performance  will  con-nue  in  line  with  
previous  performance  of  industry  trends  
unless  something  unusual  is  happening  
in  the  contrary.  
12.  Without  sufficient  understanding  of  the  
             client,  the  auditor  cannot  perform  an    
             effec-ve  audit.  PSA  315  
13.  Analy-cal  procedures  involve  comparison  of  
           the  client’s  expecta-ons  &  recorded  amounts  
           in  financial  statements  and,  if  necessary,  
           further  inves-ga-on.  
14.  The  number  of  employees  hired  &  terminated  
             to  predict  the  change  in  payroll  expense  from  
             previous  year  to  current  balance  is  an  example  
             of  trend  analysis.  
15.  The  auditor  uses  analy-cal  procedures  to    
             inves-gate  significant  differences  between  
             expected  and  recorded  amounts.  
MULTIPLE  CHOICES  
1.  Analy-cal  procedures  are  so  important  that  they  
are  required  specifically  during    
a.  Planning  and  tes-ng  phases  
b.  Tes-ng  and  comple-on  phases  
c.  Planning  and  comple-on  phases  
d.  Planning,  tes-ng  and  post-­‐comple-on  phases  
2.    Which  of  the  following  are  included  in  the  key  
elements  of  auditor’s  understanding  
I.  External  factors  
II.  Internal  factors  
III.  Nature  of  en-ty  
IV.  Accoun-ng  policies  
V.  En-ty’s  objec-ves  and  Strategies  
a.  I,  II  and  III  only                                c.    All  of  the  above  
b.  I,  III  and  IV  only                              d.  I,  III,  IV  and  V  only  
3.    Which  of  the  following  non-­‐financial  informa-on  
would  an  auditor  most  likely  consider  in  
performing  analy-cal  procedures  during  the  
planning  phase  of  an  audit?  
a.  Turnover  of  personnel  in  the  accoun-ng  
department  
b.  Square  footage  of  selling  space  
c.  Objec-vity  of  audit  commiUee  members  
d.  Management’s  plans  to  repurchase  stock  
4.    Which  of  the  following  would  not  be  classified  as  an  
analy-cal  procedure?  
a.  Reconciling  fixed  assets  disposi-on  with  fixed  assets  
ledger.  
b.  Benchmarking  the  company’s  profitability  ra-os  
against  others  in  the  industry  
c.  Variance  analysis  of  actual  versus  budgeted  amounts  
for  produc-on  
d.  Re-­‐performing  the  client’s  deprecia-on  expense  using  
the  client’s  accoun-ng  policies  for  CAPEX  during  the  
year.  
5.    The  objec-ves  of  the  engagement  partner’s  
communica-on  with  the  audit  team  include  
a.  Complying  with  SEC  rules  
b.  Complying  with  FRSC  rules  
c.  Emphasizing  the  importance  of  professional  
skep-cism  
d.  Maintaining  an  adversarial  atmosphere  between  
the  auditor  and  management  
6.    An  auditor’s  analy-cal  procedures  most  likely  would  
be  facilitated  if  the  en-ty  
a.  Corrects  material  weaknesses  in  internal  control  
before  the  beginning  of  the  audit  
b.  Uses  a  standard  cost  system  that  produces  variance  
reports  
c.  Segregates  obsolete  inventory  before  the  physical  
inventory  count  
d.  Develops  its  data  from  sources  solely  within  the  
en-ty  
7.    The  auditor  no-ces  significant  fluctua-ons  in  key  
elements  of  the  company’s  F/S.    If  management  is  
unable  to  provide  an  acceptable  explana-on,  the  
auditor  should  
a.  Consider  the  maUer  as  a  scope  limita-on  
b.  Intensify  the  examina-on  with  the  expecta-on  of  
detec-ng  management  fraud  
c.  Withdraw  from  the  engagement  
d.  Perform  addi-onal  audit  procedures  to  inves-gate  
the  maUer  further  
8.    Sources  of  informa-on  for  observa-on  &  inspec-on  
may  include  
I.  En-ty’s  opera-ons,  premises,  &  plant  facili-es  
II.  Documents  (business  plans),  control  manuals,  2Ps  
III.  Management  and  TCWG  reports  (minutes,  etc)  
IV.  Books,  periodicals  &  other  publica-ons  
V.  Personal  correspondences  of  BOD  chair  

a.  I,  II  and  III  only                                        c.    I,  III  and  IV  only  
b.  I,  II,  III  and  IV  only                            d.  All  of  the  above  
9.    An  example  of  analy-cal  procedure  is  the  comparison  
of
 

a.  EDP  generated  data  with  similar  data  generated  by  a  

manual  accoun-ng  system  
b.  Result  of  sta-s-cal  sample  with  the  expected  
characteris-cs  of  the  actual  popula-on  
c.  Financial  informa-on  with  similar  informa-on  
regarding  the  industry  in  which  the  en-ty  operates  
d.  Recorded  amounts  of  major  disbursements  with  
appropriate  invoices.  
10.    Which  of  the  following  represents  a  procedure  that  
the  auditor  may  use  because  of  plausible  
rela-onships  among  F/S  balances  are  expected  to  
exist?  
a.  Analy-cal  review  
b.  AUributes  tes-ng  
c.  Enterprise  risk  assessment  (ERM)  
d.  Inherent  test  control  
11.    Which  of  the  following  represents  a  procedure  that  
the  auditor  may  use  because  of  plausible  
rela-onships  among  F/S  balances  are  expected  to  
exist?  
a.  AUributes  tes-ng  
b.  Enterprise  risk  assessment  (ERM)  
c.  Inherent  test  control  
d.  Analy-cal  review  
12.    Analy-cal  procedures  used  in  planning  an  audit  
should  focus  on  iden-fying  
a.  Material  weaknesses  in  the  internal  control  structure  
b.  Predictability  of  financial  data  from  individual  
transac-ons  
c.  Areas  that  may  represent  specific  risk  relevant  to  
audit  
d.  Various  asser-ons  that  are  embodied  in  the  financial  
statements.  
13.    Which  of  the  following  tends  to  be  most  predictable  
for  purposes  of  analy-cal  procedures  applied  as  
substan-ve  tests?  
a.  Rela-onships  involving  balance  sheet  accounts  
b.  Rela-onships  involving  income  statement  accounts  
c.  Transac-ons  subject  to  management  discre-on  
d.  Data  subject  to  audit  tes-ng  in  prior  years  
14.    Analy-cal  procedures  used  in  planning  an  audit  
should  focus  on?  
a.  Enhancing  the  auditor’s  understanding  of  the  
client’s  business  
b.  Evalua-ng  the  adequacy  of  evidence  gathered  
concerning  unusual  balances  
c.  Tes-ng  individual  account  balances  that  depend  on  
accoun-ng  es-mates  
d.  Iden-fying  material  weaknesses  in  internal  control  
15.    In  the  context  of  an  audit  of  F/S,  substan-ve  tests  
are  audit  procedures  that?  
a.  May  be  eliminated  under  certain  condi-ons  
b.  Are  designed  to  discover  significant  subsequent  
events  
c.  May  be  either  tests  of  transac-ons,  direct  tests  of  
financial  balances    or  analy-cal  tests  
d.  Degree  of  reliance  on  the  relevant  internal  controls.  
16.    To  obtain  understanding  of  a  con-nuing  client’s  
business,  an  auditor  most  likely  would?  
a.  Perform  tests  of  details  of  transac-ons  &  balances  
b.  Review  prior  year  working  papers  &  permanent  file  
for  the  client  
c.  Read  current  issues  of  specialized  industry’s  
journals  
d.  Re-­‐evaluate  the  client’s  internal  control  
environment.  
17.    A  benefit  obtained  from  comparing  the  client’s  
data  with  industry  averages  is  that  it  provides  a(n)?  
a.  Indica-on  where  errors  exist  in  the  statements  
b.  Benchmark  to  be  used  in  evalua-ng  a  client’s  
budgets  
c.  Indica-on    of  the  likelihood  of  financial  problems  
d.  Comparison  of  ‘what  is’  with  ‘what  should  be’  
18.  Auditor  observed    at  year  end  that  only  one  of  the  
company’s  ten  divisions  had  a  large  number  of  material  
sales  transac-ons.    In  terms  of  risk  analysis,  this  would  
most  likely  lead  to…  
a.  A  rela-vely  higher  risk  of  overstatement  of  revenues  for  
this  division  than  the  other  divisions  
b.  Risks  associated  with  audi-ng  this  division  is  not  affected  
by  this  informa-on  
c.  A  high  risk  that  liabili-es  of  this  division  is  understated  
d.  A  high  risk  that  the  other  divisions  have  understated  
revenues.  
19.    Each  of  the  following  may  be  relevant  to  an  auditor  when  
obtaining  knowledge  about  the  client’s  business  and  
industry,  except:  

a.  Publica-ons  related  to  the  industry  

b.  Visits  to  the  en-ty’s  premises  
c.  Performing  a  walkthrough  tests  
d.  Discussion  with  people  within  or  outside  the  en-ty  
20.  Analy-cal  procedures  under  the  risk  assessment  phase  is  
used  to    help  iden-fy  the  existence  of  unusual___  that  
may  indicate  ROMM  especially  due  to  fraud.  
I.  Transac-ons  
II.  Amounts  
III.  Ra-os  
IV.  Trends  

a.  I,  II  and  IV  only                                c.    I  and  II  only  

b.  II,  III  and  IV  only                            d.    I,  II,  III  and  IV  
21.    Analy-cal  procedures  are  used  for  the  following  
purposes  except  
a.  As  an  overall  review  of  financial  informa-on  in  the  
final  review  stage  of  the  audit  
b.  To  evaluate  the  effec-veness  of  the  client’s  internal  
control  
c.  As  a  substan-ve  test  to  obtain  eviden-al  maUer  
about  par-cular  asser-on  related  to  account  balances  
d.  To  assist  the  auditor  in  planning  the  nature,  -ming  
and  extent  of  other  audi-ng  procedures  
22.    Which  of  the  following  methods  is  considered  the  
best  combina-on  in  obtaining  audit  evidence  
assuming  documentary  evidence  is  available  to  the  
auditor?  
a.  Inquiry  and  inspec-on  
b.  Inspec-on  and  re-­‐performance  
c.  Inquiry  and  analy-cal  procedure  
d.  Observa-on  and  inquiry  
23.    Analy-cal  procedures  are  
a.  Substan-ve  tests  designed  to  evaluate  a  system  of  
internal  control  
b.  Tests  of  controls  designed  to  evaluate  the  validity  
of  management’s  representa-on  leUer  
c.  Tests  of  controls  designed  to  evaluate  the  
reasonableness  of  financial  informa-on  
d.  Substan-ve  tests  designed  to  evaluate  the  
reasonableness  of  financial  informa-on  
24.  Which  of  the  following  ul-mately  determines  the  
specific  audi-ng  procedures  necessary  in  the  
circumstances  to  afford  a  reasonable  basis  for  an  
opinion?  
a.  Rela-ve  risk  
b.  Auditor  judgment  
c.  Materiality  
d.  Reasonable  assurance  
25.    Which  of  the  following  statements  is  most  correct  
regarding  the  primary  purpose  of  audit  procedures?  
a.  Detect  all  errors  or  fraudulent  ac-vi-es  
b.  Comply  with  Securi-es  Regula-on  Code,  Rule  68  
promulgated  by  SEC  
c.  Gather  corrobora-ve  audit  evidence  about  
management’s  asser-ons  regarding  the  client’s  financial  
statements  
d.  Determine  the  amount  of  errors  in  the  balance  sheet  
accounts  in  order  to  adjust  the  accounts  to  actual.