Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
The steps involved in performing analytical procedures are outlined in the exhibit below.
Exhibit 8.5-1
What To Do
Identify
Relationships
within the Data
Compare
Evaluate Results
How To Do It
Develop expectations about plausible relationships among the various types of
information that could reasonably be expected <strong>to</strong> exist. Where possible, seek <strong>to</strong> use
independent (i.e., not internally generated) sources of information.
The financial and non-financial information could include:
• Financial statements for comparable previous periods;
• Budgets, forecasts, and extrapolations, including extrapolations from interim or
annual data; and
• Information regarding the industry in which the entity operates and current
economic conditions.
Compare expectations with recorded amounts or ratios developed from recorded
amounts.
Evaluate the results.
Where unusual or unexpected relationships are found, consider potential risks of
material misstatement.
The results of these analytical procedures should be considered along with other information gathered <strong>to</strong>:
• Identify the risks of material misstatement related <strong>to</strong> assertions embodied in significant financial
statement items; and
• Assist in designing the nature, timing, and extent of further audit procedures.
Note: Some smaller entities may not be able <strong>to</strong> provide the audi<strong>to</strong>r with current financial information such as
interim or monthly financial information for performing analytical procedures. In these circumstances,
some information may be obtained through inquiry, but detailed inquiries may need <strong>to</strong> wait until an
early draft of the entity’s financial statements is available.
8.6 Observation and Inspection