Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p19
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 57760–61021

control deficiencies related to financial reporting.

Analytical Procedures (Ref: Para. 14(b))

Why Analytical Procedures Are Performed as a Risk Assessment Procedure

A27.         Analytical procedures help identify inconsistencies, unusual transactions or events, and amounts, ratios, and trends that indicate matters that may 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.

A28.         Analytical procedures performed as risk assessment procedures may therefore assist in identifying and assessing the risks of material misstatement by identifying aspects of the entity of which the auditor was unaware or understanding how inherent risk factors, such as change, affect susceptibility of assertions to misstatement.

Types of Analytical Procedures

A29.         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 (non-financial).

           * Use data aggregated at a high level.  Accordingly, the results of those analytical procedures may provide a broad initial indication about the likelihood of a material misstatement.
Example:

In the audit of many entities, including those with less complex business models and processes, and a less complex information system, the auditor may perform a simple comparison of information, such as the change in interim or monthly account balances from balances in prior periods, to obtain an indication of potentially higher risk areas.

A30.         This ASA deals with the auditor's use of analytical procedures as risk assessment procedures.  ASA 520[24] deals with the auditor's use of analytical procedures as substantive procedures ("substantive analytical procedures") and the auditor's responsibility to perform analytical procedures near the end of the audit.  Accordingly, analytical procedures performed as risk assessment procedures are not required to be performed in accordance with the requirements of ASA 520.  However, the requirements and application material in ASA 520 may provide useful guidance to the auditor when performing analytical procedures as part of the risk assessment procedures.

Automated tools and techniques

A31.         Analytical procedures can be performed using a number of tools or techniques, which may be automated.  Applying automated analytical procedures to the data may be referred to as data analytics.
Example:

The auditor may use a spreadsheet to perform a comparison of actual recorded amounts to budgeted amounts, or may perform a more advanced procedure by extracting data from the entity's information system, and further analysing this data using visualization techniques to identify classes of transactions, account balances or disclosures for which further specific risk assessment procedures may be warranted.

Observation and Inspection (Ref: Para. 14(c))

Why Observation and Inspection Are Performed as Risk Assessment Procedures

A32.         Observation and inspection may support, corroborate or