[barelystayingsane]

When applying analytical precedes during an audit, which of the following is the best approach for developing expectations?

Becker says the answer is identifying reasonable explanations for unexpected differences before talking to client management.

But wouldn’t this take place AFTER you’ve developed an expectation and already performed the analytical procedure?

Any assistance would be greatly appreciated! Thank you!

[Jennifer241]

Lets say during your planning the client tells you that it took out a new loan to purchase a new fleet of trucks.

Planning testing

You come up with expectations that “Per conversations with the client I expect that the fixed assets are going to increase by the fleet of trucks purchase, 20 trucks @ 20,000/truck; therefore you expect the Fixed Assets Fleet Trucks account to increase $400,000.00.”

Further, you also have the same expectation for the new loan, and upon review of the notes payable you find that it has increased proportionate to your expectation. (it may be lower depending on the principal payments made throughout the fiscal year)

If these expectations is absolutely correct, then this satisfies your valuation & completion assertion (the fixed assets are complete on the books) and can be used as substantive evidence at that point. I would still test for the existence and ask to see the trucks, that way you know that the fleet exists and simply wasn't just a paper trail on the books.

Also, analytics are used quite a bit in Accounts receivable substantive testing. You compare the prior year 30/60/90 aging to the current years 30/60/90 aging. Gross margin/profit % can show us if something is off during substantive procedures.

AUD - Jan 9,13 Pass
REG - Aug 30,13 Pass
BEC - Oct 26,13 Pass
FAR - Dec 4,13 Pass

Licensed CPA in the state of Oregon

[Author]

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