• 5 Marks

AA – Nov 2017 – L2 – Q3c – Audit and Assurance Evidence

List and explain three factors to consider when determining the extent of reliance on analytical procedures as substantive audit evidence.

ISA 520 Analytical Procedures provides guidance to auditors on the use of analytical procedures during the course of the external audit.

Required:
When using analytical procedures as substantive audit procedures, list and briefly explain with examples three factors to consider when determining the extent of reliance that can be placed on the results of such procedures.

  • Materiality of the items involved: If the items being examined are material, auditors should not solely rely on analytical procedures. For example, for significant inventory balances, other substantive procedures may also be necessary.
  • Other audit procedures performed: The reliability of analytical procedures increases when supported by other audit procedures, such as testing cash receipts or performing detailed tests of transactions.
  • Accuracy of the underlying data: The quality of the data used in analytical procedures must be considered. For example, if the data used to calculate sales trends is accurate and reliable, the results of the analysis can be trusted more.

(3 points @ 1.5 marks each + 0.5 marks for examples = 5 marks)

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