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
Each technique has its particular strengths and weaknesses that the audi<strong>to</strong>r needs <strong>to</strong> consider when
designing the analytical procedures. A complex technique such as regression analysis may provide statistically
reliable conclusions about a recorded amount. However, a simple technique such as multiplying the number
of apartments by the approved rental rates (per leases) and adjusting the result for actual vacancies may
provide a reliable and precise estimate of the rental revenue.
Exhibit 10.4-2
Fac<strong>to</strong>rs <strong>to</strong> Consider
Designing
Substantive
Analytical
Procedures
Suitability given the nature of the assertions.
Reliability of the data (internal or external) from which the expectation of recorded
amounts or ratios is developed. This will require tests on the accuracy, existence, and
completeness of the underlying information such as tests of controls or performing
other specific audit procedures, possibly including the use of computer-assisted audit
techniques (CAATs).
Whether the expectation is sufficiently precise <strong>to</strong> identify a material misstatement at
the desired level of assurance.
Amount of any difference in recorded amounts from expected values that would be
acceptable.
Questions <strong>to</strong> Address
Establishing
Meaningful
Relationships
between
Information
Are the relationships developed from a stable environment?
• Reliable and precise expectations may not be possible in a dynamic or unstable
environment.
Are the relationships considered at a detailed level?
• Disaggregation of amounts can provide more reliable and precise expectations
than an aggregated level.
Are there offsetting fac<strong>to</strong>rs or complexity among highly summarized components
that could obscure a material misstatement?
Do the relationships involve items subject <strong>to</strong> management discretion?
• If so, they may provide less reliable or less precise expectations.
The degree of reliability of data used <strong>to</strong> develop expectations needs <strong>to</strong> be consistent with the levels of
assurance and precision intended <strong>to</strong> be derived from the analytical procedure. Other substantive procedures
may also be required <strong>to</strong> determine whether the underlying data is sufficiently reliable. Tests of controls may
also be considered <strong>to</strong> address other assertions such as the data’s completeness, existence, and accuracy.
Internal control over non-financial information can often be tested in conjunction with other tests of controls.