AUDIT AND ASSURANCE

ISA 520 – Analytical Procedures

Presented by

GHULAM ABBAS
Reg. No 20202245

gh.abbasawan@gmail.com
 Auditor’s Objective!

To “express an
opinion" as to whether To “obtain relevant
and reliable audit
financial statements of evidence” which
suppor t to
an entity “give true and “auditor ’s
opinion”, Auditor
fair view in all material apply various
aspect” in accordance procedure (audit
procedures). One
with the identified of them is
“Analytical
financial statement procedure”.

frame work.
 Use / Purpose of Analytical Procedures

Analytical procedures are used at 3 stages of audit.

At initial stage as “Risk assessment procedure”

[ISA 315]

During the audit as “Substantive Procedure”

[ISA 520]

At final stage as “to informing overall conclusion.”

[ISA 520]
 ISA -520: Analytical Procedures
Definition:
The term “Analytical procedure” means evaluation of financial information
through “Analysis” (Comparison) and “plausible relationship” among both financial
and non-financial data.
Analytical procedures also encompass such investigation as is necessary of
identified fluctuations or relationship that are inconsistent with other relevant
information or that differ from expected value by as significant amount.
 Comparison with
• Prior period information
• Industry information
• Entity’s budgets
• Comparable part of same entity (e.g. branch wise)
 Plausible relationship with
• Financial information (e.g. selling expenses with sale)
• Non-financial information (e.g. payroll to number of employees)
 Substantive Analytical Procedure
When auditor designing and performing substantive procedure, either alone or
in accordance with test of details, the auditor shall follow the following steps.
1. Determine the suitability of SAP:
 How to efficient in detecting misstatements.
 Suitable for large volume data with practicable relationship
2. Evaluate reliability of data:
 Source of information
 Control over preparation
 Nature and relevance of information
 Comparability of financial information
3. Develop precise expectation
 Availability of information
 Disaggregated information
 How accurately result can be predicted
 Substantive Analytical Procedure
4. Determine acceptable difference
 Risk
 Materiality
 Desire level of assurance
5. Investigate Significant differences
 Inquire of management
 Corroborate
 Perform other Procedures

*SAP when Forming an Overall Conclusion

The auditor shall design and perform analytical procedure near the end of
the audit that assist the auditor when forming an overall conclusion as to
whether the financial statements are consistent with the auditors
understanding of the entity.

*Substantive Analytical Procedures

 PRACTICAL INSIGHT
Major areas where substantive analytical procedure are
performed include:
 Sales (if sales price is fixed)
 Payroll expenses
 Depreciation expenses
 Selling Commission
 Interest expenses
 Accruals