International Standard on Auditing 520 Analytical Procedures. Analytical procedures

Definition 1

International Standard on Auditing(ISA) is professional standards, essential for audit.

ISA 520 includes the following aspects:

  • the auditor uses analytical procedures as a substantive test;
  • the auditor uses analytical procedures during the completion of the audit;
  • assistance in creating the final conclusion regarding the financial report;
  • The standard should be read in the context of International Standards on Auditing 200, General Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISAs.

The auditor's objectives include the following:

  • During a substantive audit, the auditor must obtain reliable and appropriate audit evidence;
  • The auditor must develop and perform analytical procedures at the end of the audit. This enables the auditor to reach a final conclusion regarding the financial statement.

Analytical procedures involve the assessment of monetary information through the analysis of possible dependencies between financial and non-financial information. They also include consideration if inappropriate or materially different information has been identified, e.g. analytical procedures contain the identification of any dependencies.

In developing and performing analytical substantive audit procedures, the auditor's responsibilities include the following aspects:

  • the auditor must determine whether the analytical procedure is being applied;
  • the auditor must evaluate the reliability of the data;
  • the auditor must develop expected values ​​of data, accounting ratios and estimate sufficiently accurate values ​​to identify misstatements;
  • the auditor must establish the difference between probable and actual values;
  • the auditor must form a conclusion.

When identifying dependencies, the auditor should consider these inconsistencies to:

  • make inquiries to superiors and obtain sufficient evidence regarding the responses received from superiors;
  • carry out the necessary audit procedures.

Evidence obtained from management is identified by evaluating statements while taking into account the organization's auditor's understanding and other evidence. If management cannot give an answer to the auditor, then other analytical procedures must be carried out.

Essence of ISA 530

ISA 530 Audit Sampling is used when the auditor applies audit sampling.

ISA 530 includes the following aspects:

  • statistical and non-statistical sampling;
  • performing control tests or detailed tests;
  • evaluation of results after sampling;
  • The standard must be read in the context of International Standards on Auditing 200.

This standard complements International Standard 500. ISA 500 includes consideration of the auditor's responsibility to design and perform audit procedures to obtain sufficient and appropriate evidence to support an appropriate conclusion. In other words, the basis of the auditor's opinion. ISA 500 enables the auditor to select the necessary tools and elements for the test. ISA 500 includes an audit sample.

Note 1

The purpose of the auditor's use of this sample is to provide the auditor with an adequate basis so that he can draw conclusions regarding the population as the sample is formed from it.

Terminology for the purposes of this International Standard:

  1. audit sampling;
  2. totality;
  3. selective risk;
  4. non-sampling risk;
  5. anomaly;
  6. selection element;
  7. statistical sampling/non-statistical sampling;
  8. stratification;
  9. acceptable distortion;
  10. acceptable level of deviations.

Let's look at each definition.

Definitions

  1. Involves the application of audit procedures to less than 100% of the elements within the population. This enables the auditor to draw conclusions on the population as a whole, in which all elements have equal rights in selection.
  2. All information on the basis of which the auditor’s sample and conclusion is created.
  3. Risk that includes inconsistencies in the data obtained when using the same audit sample. Two types of erroneous conclusions during control tests or detailed tests:
    • control tests are more effective than in reality; detailed tests do not show significant distortion, but it actually exists. The auditor considers this error option first, as it directly affects the effectiveness of the audit and is more likely to lead to an incorrect auditor opinion;
    • control tests that are less effective than in reality; detailed tests have significant bias, but it is not actually present. This error affects the effectiveness of the audit and requires additional verification to detect errors in the original assumption.
  4. The risk of an erroneous auditor's conclusion for any reason not related to sampling risk.
  5. A deviation that is unusual in relation to distortions already present in the sample.
  6. Individual elements that make up a totality.
  7. A method for creating a sample that has character traits:
    • random selection of elements of the sample population;
    • application of probability theory to evaluate results;
    • risk measurement.
  8. Dividing the population into subspecies.
  9. The auditor establishes a monetary value in relation to which he obtains a sufficient appropriate level of confidence that the misstatements present do not exceed the established monetary value.
  10. The degree of deviation from the internal control procedures established by the auditor. The auditor obtains a reasonable level of assurance that misstatements present do not exceed the specified extent.

Auditor's Responsibilities in Relation to the Audit Sample

To select the type of audit sample, the auditor should:

  • consider the goals of the procedure;
  • characteristics of the main population;
  • determine the sample size (necessary to reduce sampling risk and equalize elements in the probability of selection);
  • carry out procedures to achieve set goals for each selected element. If the procedure is not applicable to an element, the auditor should replace the element. If the auditor fails to replace, the item is considered a deviation;
  • consider the nature and causes of any misstatements and deviations, and assess their likely impact on the audit objective. The auditor must achieve a high degree of confidence that misstatements and deviations do not affect the sample population. To do this, he carries out additional procedures to collect evidence on the adequacy of the distortions. For detailed tests, the auditor must, based on the identified distortions, formulate a forecast of distortions for the sample population;
  • evaluate the results of a random check;
  • evaluate whether the use of an audit sample provided an adequate basis for making a conclusion regarding the population being tested.

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International Standard on Auditing 520, Analytical Procedures

International Standard on Auditing 520 considers the auditor's use of analytical procedures as substantive and pre-audit procedures that assist the auditor in reaching the final conclusion on the audit. financial statements and should be read in the context of ISA 200, General Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing.

Auditor's objectives:

  • Obtain appropriate and reliable audit evidence by applying substantive analytical procedures;
  • develop and perform analytical procedures near the end of the audit that can assist the auditor in reaching a final conclusion on the financial statements about whether the financial statements are consistent with the auditor's understanding of the entity.

The term "analytical procedures" means the evaluation financial information by analyzing the existence of possible dependencies between financial and non-financial information. Analytical procedures also include consideration, when appropriate, of identified relationships that are inconsistent with other available information or that differ significantly from expected values.

When developing and performing substantive analytical procedures, the auditor is required to:

  • determine the applicability of a particular analytical procedure;
  • assess the reliability of the data;
  • develop the auditor's expectations of accounting data or ratios and evaluate whether those values ​​are sufficiently accurate to identify a misstatement that, alone or in combination with other misstatements, may cause the financial statements to be materially misstated;
  • determine the difference between the auditor's expected values ​​of accounting data or ratios and the actual accounting ones.

The auditor is required to develop and perform, near the end of the audit, analytical procedures that will assist him in forming an overall conclusion about whether the financial statements are consistent with his understanding of the entity.

If analytical procedures reveal relationships that are inconsistent with other available information or differ from expected values ​​by a significant amount, the auditor should consider these inconsistencies by:

  • make inquiries to management and obtain sufficient appropriate audit evidence regarding management responses received;
  • perform other audit procedures that may be necessary in the circumstances.

Audit evidence related to management's statements can be obtained by evaluating those statements in light of the auditor's understanding of the entity and its environment and other audit evidence obtained during the audit.

The need to perform other audit procedures may arise when, for example, management is unable to provide an explanation or the explanation and the audit evidence regarding it cannot be considered adequate.

International Standard on Auditing 530 Audit Sampling

International Standard on Auditing 530 applies when the auditor decides to use audit sampling in performing audit procedures. The standard deals with the auditor's use of statistical and non-statistical sampling techniques in designing and selecting an audit sample, performing tests of controls or detailed tests and evaluating the results of sampling and should be read in the context of ISA 200, General Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing. .

This MCA complements MCA 500, which addresses the auditor's responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. ISA 500 provides guidance on the means available to the auditor for selecting items for testing, one of which is audit sampling.

The auditor's objective in using audit samples is to provide a reasonable basis for drawing conclusions about the sample population.

For the purposes of the MCA, the following terms are used.

Audit sample – applying audit procedures to less than 100% of the elements within the auditor's population to enable the auditor to draw conclusions about the entire population so that all elements in the sample have an equal probability of being selected.

Totality – the entire set of information on the basis of which the audit sample is formed and regarding which the auditor wants to draw conclusions.

Selective risk – the risk that the auditor's conclusions based on a sample may differ from the conclusions that would be obtained if the same procedure were applied to the entire population. Selective risk can lead to two types of erroneous conclusions:

  • 1) in the case of tests of control, that the tests of control are more effective than they actually are, or in the case of detailed tests, that there is no material misstatement when in fact there is one. The auditor considers this type of inappropriate conclusion primarily because it affects the effectiveness of the audit and is more likely to lead to an inappropriate audit opinion;
  • 2) in the case of tests of controls, that the tests of controls are less effective than they actually are, or in the case of detailed tests, that there is a material misstatement when in fact there is none. This type of incorrect conclusion affects the effectiveness of the audit because it typically results in additional work having to be done to discover that the original assumption is incorrect.

Risk , non-sampling , – the risk that the auditor comes to an incorrect conclusion for any reason not related to sample risk.

Anomaly – a distortion or deviation that is obviously unrepresentative of the distortions or deviations present in the sample.

Sample element – individual elements that make up the totality.

Statistical sampling – an approach to sampling that has the following characteristics: random selection of elements of the sample population and the use of probability theory to evaluate the results of the sample, measurement of the risk associated with the use of the sample. A sampling method that does not meet these requirements is considered non-statistical sample.

Stratification – the process of dividing a population into subpopulations, each of which is a group of sample elements that have the same characteristics (often value).

Acceptable distortion – a monetary amount established by the auditor about which the auditor obtains a reasonable level of assurance that the actual misstatement existing in the aggregate does not exceed the monetary amount specified by the auditor.

Acceptable level of deviations – The level of deviations from established internal control procedures established by the auditor for which the auditor obtains a reasonable level of assurance that the actual level of deviations occurring in the aggregate does not exceed the auditor's established acceptable level of deviations.

When determining the type of audit sample, the auditor is required to consider the objectives of the audit procedures and the characteristics of the population from which the sample will be formed.

The auditor is required to determine a sample size sufficient to reduce sampling risk to an acceptably low level so that each sample element has an equal probability of being selected.

The auditor is required to perform procedures appropriate to the purpose of the audit for each item selected. If the audit procedure is not applicable to a given sample element, then the auditor must perform it on a replacement element. If the auditor is unable to apply the specified audit procedures or acceptable alternative procedures to a selected element, the auditor should consider the element to be a deviation from the prescribed control procedure in the case of tests of controls or a misstatement in the case of detailed tests.

The auditor is required to consider the nature and cause of any deviations or misstatements identified and evaluate their possible impact on the objective of the audit procedure and on other areas of the audit. The auditor must achieve high degree assurance by performing additional audit procedures to obtain sufficient appropriate audit evidence that the variance or misstatement does not affect the remainder of the sample population. For detailed tests, the auditor is required to make a forecast of distortions for the sample population based on the identified misstatements.

The auditor is required to evaluate:

  • what are the results of the random check;
  • whether the use of the audit sample provided a reasonable basis for drawing conclusions about the population being tested.

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Analytical Procedures (ISA 520): Details for the Accountant