Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p12
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 12/47)
Character Range: 40732–43963

assessed risks.  Analytical procedures performed as risk assessment procedures may include both financial and non‑financial information, for example, the relationship between sales and square footage of selling space or volume of goods sold.

A15.         Analytical procedures may help identify the existence of unusual transactions or events, and amounts, ratios, and trends that might indicate matters that have audit implications.  Unusual or unexpected relationships that are identified may assist the auditor in identifying risks of material misstatement, especially risks of material misstatement due to fraud.

A16.         However, when such analytical procedures use data aggregated at a high level (which may be the situation with analytical procedures performed as risk assessment procedures), the results of those analytical procedures only provide a broad initial indication about whether a material misstatement may exist.  Accordingly, in such cases, consideration of other information that has been gathered when identifying the risks of material misstatement together with the results of such analytical procedures may assist the auditor in understanding and evaluating the results of the analytical procedures.

Considerations Specific to Smaller Entities

A17.         Some smaller entities may not have interim or monthly financial information that can be used for purposes of analytical procedures.  In these circumstances, although the auditor may be able to perform limited analytical procedures for purposes of planning the audit or obtain some information through enquiry, the auditor may need to plan to perform analytical procedures to identify and assess the risks of material misstatement when an early draft of the entity's financial report is available.

Observation and Inspection (Ref: Para. 6(c))

A18.         Observation and inspection may support enquiries of management and others, and may also provide information about the entity and its environment.  Examples of such audit procedures include observation or inspection of the following:

           * The entity's operations.

           * Documents (such as business plans and strategies), records, and internal control manuals.

           * Reports prepared by management (such as quarterly management reports and interim financial reports) and those charged with governance (such as minutes of board of directors' meetings).

           * The entity's premises and plant facilities.

Information Obtained in Prior Periods (Ref: Para. 9)

A19.         The auditor's previous experience with the entity and audit procedures performed in previous audits may provide the auditor with information about such matters as:

           * Past misstatements and whether they were corrected on a timely basis.

           * The nature of the entity and its environment, and the entity's internal control (including deficiencies in internal control).

           * Significant changes that the entity or its operations may have undergone since the prior financial period, which may assist the auditor in gaining a sufficient understanding of the entity to identify and assess risks of material misstatement.

           * Those particular types of