Some more material I found on Analytical Procedures that you will use in the General and Review stages of the Audit.
SAS No. 56 describes analytical procedures as the “evaluation of financial information made by a study of plausible relationships among both financial and nonfinancial data”
Examples of such sources include the following:
Financial information from comparable prior periods adjusted for any changes expected to affect the current-period balances. For example, an expectation of sales revenues for the current year might be based on the prior year's sales, adjusted for factors such as price increases or the known addition or loss of major customers.
Expected results based on budgets or forecasts prepared by the client or projections of expected results prepared by the auditor from interim periods or prior comparable periods.
Available information from the company's industry. For example, changes in sales revenue or gross margin percentages might be based on available data from industrywide statistics.
Nonfinancial information. For example, sales revenue for a client from the hotel industry might be based on available data as to room occupancy rates.
This you would do if you are in the “Fieldwork” Stage and wanted to use Analytical procedures –
If analytical procedures are being performed as a substantive test, the auditor will need to gather information to evaluate the explanation being considered, since the primary purpose of substantive analytical procedures is to provide evidence as to the validity of an account balance. The type and amount of corroboration for the explanation will vary based on factors such as the size of the unexpected difference, the significance of the difference to the overall financial statements, and the risks (e.g., internal control and inherent) associated with the account balance(s) affected. As any of these factors increase, the reliability of the information obtained in support of the explanation should also increase. SAS No. 56 provides guidance for auditors in the evaluation of the reliability of data. Some of the factors to be considered by the auditors include the following:
Data obtained from independent sources outside the entity are more reliable than data obtained from sources within the entity.
If data are obtained from within the entity, data obtained from sources independent from the amount being audited are more reliable.
Data developed under a system with adequate controls are more reliable than data from a system with poor controls.
After an auditor gathers information for purposes of evaluating an analytical procedures explanation, it is a matter of professional judgment in determining whether the evidence adequately supports the explanation.
Hope this helps
FAR 05/27/14; 786/110 - Done !
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