Chapter 11 Substantive Tests and Analytical Procedures

Substantive testing (CRV E-Balance; ACCC UO-Disclosure)

-Tests of Details

-Analytical Procedures

How is Analytical Procudure done?

-prior period

-budget vs forecast

-prediction by auditors

-industry information

-elements of Financial statement eg Gross profit vs sales

-financial vs non financial information eg payroll vs number of employees

-ratio analysis

-trend analysis

-proof in total

-own expectation

-expectation vs actual

3 stages of analytical procedure

1. planning stage

understand client's FS

spot possible errors

error looks possible, audit work directed toward the errors

2. during audit process

financial vs non financial information

prior period, budget, forecast, similar industries

3. final review

future AP - going concern?

Drawbacks Analytical Procedures

TEST FOR ERRORS

TEST FOR OMISSIONS

Detection risk - cannot obtain accurate information

Plausibility & Predictability - subjectivity and interpretations

Business specifics - experience and industry specific knowledge to apply AP