Guide to Using International Standards on Auditing in - IFAC

126
<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
Examples of Effective Substantive Analytical Procedures
Exhibit 10.4-4
Financial
Statement
Amount
Sales
Amortization
Expenses
Overhead Element
of Inven<strong>to</strong>ry
Payroll Expense
Commission
Expense
Payroll Accruals
Relationship and Procedure
Selling price applied <strong>to</strong> the quantities shipped.
Amortization rate applied <strong>to</strong> capital asset balances, allowing for effect of additions
and disposals.
Relating actual overheads <strong>to</strong> actual direct labor or production volumes.
Pay rates applied <strong>to</strong> number of employees.
Commission rate applied <strong>to</strong> sales.
Daily payroll applied <strong>to</strong> number of days accrued.
Other Analytical Procedures
Analysis can take the form of:
• Detailed comparisons of current financial statement or financial data with that of prior periods or
with current operating budgets.
An increase in accounts receivable with no corresponding increase in sales could indicate that a
problem exists in the collectability of accounts receivable. An increase in the number of employees
in a professional organization would lead the audi<strong>to</strong>r <strong>to</strong> expect an increase in salary expense and a
corresponding increase in professional fee revenue.
• Comparative data on the various types of products sold or types of cus<strong>to</strong>mers.
This could help explain month-<strong>to</strong>-month or period-<strong>to</strong>-period fluctuations in sales.
• Ratio analysis.
Ratios can provide support for the current financial statements (e.g., comparable <strong>to</strong> industry norms or prior
periods’ results) or raise points for discussion. Certain institutions, such as banks and trade associations,
produce financial statistics on an industry-wide basis. Such statistics can be useful when compared <strong>to</strong>
those of an entity’s operation, and inquiries made where differences from industry trends occur.
• Graphs.
Finally, consider the use of graphs <strong>to</strong> portray the results of procedures. Graphs visually highlight
significant differences from month <strong>to</strong> month or period <strong>to</strong> period.
Use of Analytical Procedures in Forming an Opinion
Paragraph #
Relevant Extracts from ISAs
520.6 The audi<strong>to</strong>r shall design and perform analytical procedures near the end of the audit that assist
the audi<strong>to</strong>r when forming an overall conclusion as <strong>to</strong> whether the financial statements are
consistent with the audi<strong>to</strong>r’s understanding of the entity. (Ref: Para. A17-A19)