Document ID: chunk:federal_register_of_legislation:F2021C01244:reg:1:p3
Version: federal_register_of_legislation:F2021C01244
Segment Type: reg
Provision Reference: reg 1 (pt 3/7)
Character Range: 11591–14924

If analytical procedures performed in accordance with this Auditing Standard identify fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount, the auditor shall investigate such differences by:

(a)                Enquiring of management and obtaining appropriate audit evidence relevant to management's responses; and

(b)                Performing other audit procedures as necessary in the circumstances.
(Ref: Para. A20-A21)

* * *

Application and Other Explanatory Material

Definition of Analytical Procedures (Ref: Para. 4)

A1.             Analytical procedures include the consideration of comparisons of the entity's financial information with, for example:

           * Comparable information for prior periods.

           * Anticipated results of the entity, such as budgets or forecasts, or expectations of the auditor, such as an estimation of depreciation.

           * Similar industry information, such as a comparison of the entity's ratio of sales to accounts receivable with industry averages or with other entities of comparable size in the same industry.

A2.             Analytical procedures also include consideration of relationships, for example:

           * Among elements of financial information that would be expected to conform to a predictable pattern based on the entity's experience, such as gross margin percentages.

           * Between financial information and relevant non-financial information, such as payroll costs to number of employees.

A3.             Various methods may be used to perform analytical procedures.  These methods range from performing simple comparisons to performing complex analyses using advanced statistical techniques.  Analytical procedures may be applied to a consolidated financial report, components and individual elements of information.

Substantive Analytical Procedures (Ref: Para. 5)

A4.             The auditor's substantive procedures at the assertion level may be tests of details, substantive analytical procedures, or a combination of both.  The decision about which audit procedures to perform, including whether to use substantive analytical procedures, is based on the auditor's judgement about the expected effectiveness and efficiency of the available audit procedures to reduce audit risk at the assertion level to an acceptably low level.

A5.             The auditor may enquire of management as to the availability and reliability of information needed to apply substantive analytical procedures, and the results of any such analytical procedures performed by the entity.  It may be effective to use analytical data prepared by management, provided the auditor is satisfied that such data is properly prepared.

Suitability of Particular Analytical Procedures for Given Assertions (Ref: Para. 5(a))

A6.             Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time.  The application of planned analytical procedures is based on the expectation that relationships among data exist and continue in the absence of known conditions to the contrary.  However, the suitability of a particular analytical procedure will depend upon the auditor's assessment of how