Which of the following is an analytical procedure that an auditor most likely uses to form an overall conclusion?

When an auditor increases the assessed risks of material misstatement because certain control activities were determined to be ineffective, the auditor most likely would increase the
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Extent of tests of details.
For a given audit risk, the acceptable detection risk is inversely related to the assessed risks of material misstatement. As the RMMs increase, the acceptable detection risk decreases, and the auditor requires more persuasive audit evidence. The auditor may (1) change the types of audit procedures and their combination, e.g., confirming the terms of a contract as well as inspecting it; (2) change the timing of substantive procedures, such as from an interim date to year end; or (3) change the extent of testing, such as by using a larger sample (AU-C 330 and AS No. 13).
Which of the following ratios would be the least useful in reviewing the overall profitability of a manufacturing company?
A.Net income to sales.
B.Net income to total assets.
C.Net income to working capital.
D.Net income to net worth.

C.Net income to working capital.
The ratio of net income to working capital is not typically considered in evaluating overall profitability. It does not give a broad measure of how effectively the firm is managed because it does not consider noncurrent assets and liabilities.
Which of the following is an analytical procedure that an auditor most likely uses to form an overall conclusion?
A.Comparing each individual expense account balance with the relevant budgeted amounts and investigating any significant variations.
B.Reading the financial statements and considering whether there are any unusual or unexpected balances that were not previously identified.
C.Testing the effectiveness of internal control procedures that appear to be suitably designed to prevent or detect material misstatements.
D.Calculating each individual expense account balance as a percentage of total entity expenses and comparing the results with industry averages.
B.Reading the financial statements and considering whether there are any unusual or unexpected balances that were not previously identified.

Analytical procedures used to form an overall conclusion should ordinarily include reading the financial statements and considering (1) the adequacy of evidence gathered in response to unusual or unexpected balances identified in planning or conducting the audit, and (2) unusual or unexpected balances or relationships not previously detected.
Which of the following circumstances would permit an independent auditor to accept an engagement after the close of the fiscal year?
A. An expectation of the effectiveness of internal control.
B.Remedy of limitations resulting from accepting the engagement after the close of the end of the year, such as those relating to the existence of physical inventory.
C.Issuance of a disclaimer of opinion as a result of inability to conduct certain tests required by generally accepted auditing standards due to the timing of the acceptance of the engagement.
D.Receipt of an assertion from the preceding auditor that the entity will be able to continue as a going concern.
B.Remedy of limitations resulting from accepting the engagement after the close of the end of the year, such as those relating to the existence of physical inventory.
The auditor may accept the engagement if (s)he can obtain sufficient appropriate evidence by performing alternative procedures, e.g., tests of prior transactions affecting inventory or reviews of the records of prior counts.
The audit plan usually cannot be finalized until the
Understanding of the entity and its environment has been completed.
The auditor must obtain an understanding of the entity and its environment, including internal control, to assess the risks of material misstatement of the financial statements, whether due to fraud or error.

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Definitions

Analytical procedures are audit procedures used to help conduct a more economic, efficient and effective audit. They consist of studying plausible relationships between both financial and non-financial data, whether within the same period and entity and/or from different periods and entities. Analytical procedures, which are used more for audits of reliability than compliance, may be used to:

analyse relationships for consistency with each other and with the auditor’s knowledge of the organisation and its activities; or
predict values which may be compared to actual values.

The term also includes the investigation of identified fluctuations and relationships that are inconsistent with other information or deviate significantly from predicted amounts.

Principles

Considerations

The auditor should bear in mind that analytical procedures are more reliable in a strong control environment with effective internal controls and good external data. However, such procedures require comprehensive and up-to-date information concerning financial and other data, which may not be the case in significant fields of EU activity. Various methods may be used when performing analytical procedures. These range from simple comparisons to complex analyses using advanced statistical techniques, for which appropriate computer software may be necessary. The auditor's choice of procedure is a matter of professional judgement. In general, analytical procedures provide a warning that something appears to be wrong, rather than providing positive, persuasive evidence of what (if anything) is wrong, and thus on their own do not normally provide sufficient, relevant and reliable audit evidence.

Instructions

Process for using analytical procedures

The use of analytical procedures involves acquiring information from various sources in order to determine what is expected; comparing the actual situation with that expectation; investigating the reasons for any discrepancies arising; and evaluating the results, as follows:

When to use analytical procedures

Analytical procedures should be used at the following phases of the audit:

Planning as risk assessment procedures, in order to identify areas of potential risk and help design further audit procedures;
Examination: • as substantive procedures, when their use can be more efficient than tests of details and can provide corroboration; and • as part of the overall review at the end of the audit, to help assess if external information is consistent with audit findings.

Substantive analytical procedures

Quality review

In addition to performing tests of details, the auditor may also employ substantive analytical procedures as part of his/her substantive procedures in order to reduce risk to an acceptably low level. Substantive analytical procedures are used to predict values, based on the expectation that relationships among data exist and continue in the absence of known conditions to the contrary. However, the risk of forming an incorrect conclusion may be higher for substantive analytical procedures than for tests of details because of the former's extensive use of the auditor's judgement. Accordingly, quality management procedures are of critical importance.

Reliable data needed

Predictive testing of this sort should only be undertaken on revenue or expenditure streams that are themselves highly predictable and where reliable data are readily available so that the predictions can be made, e.g. interest paid/received on lending and borrowing operations, payments of salaries and allowances to staff, etc.

Part of substantive testing strategy

While substantive analytical procedures will not normally on their own provide sufficient, relevant and reliable substantive audit evidence, it may be possible to use predictive testing as part of the overall substantive testing strategy for material account balances and transaction streams. For example, when, say, 60% of the transactions (by value) are high-value items, these might be tested in detail while a predictive test is used for the remaining 40% of (low-value) transactions. Or, when a small proportion, by value, of transactions is processed at a geographical location which it is not possible or efficient to visit, predictive testing may be used for that location.

Analytical procedures in the overall review

The auditor should apply analytical procedures at or near the end of the audit when forming an overall conclusion. The conclusions drawn from the results of such analytical procedures are intended to corroborate conclusions formed during the audit of individual components and assist in arriving at the overall conclusion and, if required, an opinion. Analytical procedures used at the overall review stage can be the same as those used during the planning phase and hence can be compared against each other. The review may indicate that additional evidence is required.

Resources

Examples of analytical procedures in financial and compliance audits

Audit evidence regarding the reliability of the accounts is mostly secured through tests of details, with substantive analytical procedures also undertaken when appropriate. The main areas in which substantive analytical procedures are employed are in the analytical review of:

the main accounting data for consistency and reasonableness;
the accounts regarding off-balance sheet commitments;
the economic outturn account and segment reporting;small bank balances (those opened in connection with imprests);
so-called "small" accounts.

Analytical procedures may, in certain circumstances, assist the auditor in evaluating compliance. For example, where allowances under a grants scheme are subject to a maximum value and the number of recipients is known, the auditor may use analytical procedures to establish whether the permitted maximum has been breached. Another example is an analytical review of the consistency of expenditures compared to budget or prior years. Examples of the use of predicted versus actual values:

the study of changes in an account balance over prior periods leading to a prediction for the current period (e.g. regular payment of a loan over x years);
computations that give a prediction of a given value, e.g. using farm data to predict per hectare payments per farmer.

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Which of the following is an analytical procedure that an auditor most likely would perform when planning an audit quizlet?

Compare recorded financial information with anticipated results from budgets and forecasts. Which of the following analytical procedures that an auditor most likely would perform when planning an audit? Comparing current year balances to budgeted balances.

Which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company's notes payable?

Which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company's notes payable? Ans A. Analytical procedures are the evaluation of financial information through analysis of plausible relationships among both financial and nonfinancial data.

What type of analytical procedure would an auditor most likely use in developing?

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts? Trend analysis.

Which of the following analytical procedures most likely would be used during the planning stage of an audit?

Which of the following analytical procedures most likely would be used during the planning stage of an audit? Comparing current-year to prior-year sales volumes.