Page 132 - AAA Integrated Workbook STUDENT S18-J19
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Chapter 93 4
Substantive analytical procedures
2.1 Definition
Substantive analytical procedures: Analytical procedures involve the
evaluation of financial information through analysis of plausible
relationships among both financial and non-financial data. As a
substantive procedure they are used to test the figures in the financial
statements for material misstatement.
2.2 Suitability of analytical procedures as a substantive procedure
The use of analytical procedures as substantive evidence is generally more
applicable where:
There are large volumes of transactions
Relationships exist amongst the data and are believed to be predictable over
time
Controls are working effectively.
The suitability of analytical procedures depends on four factors:
The assertion/s under scrutiny
The reliability of the data
The degree of precision possible
The amount of variation which is acceptable.
If analytical procedures identify fluctuations or relationships that are inconsistent with
the auditor's knowledge of the business then the auditor should investigate through:
Enquiry of management
Other procedures, as deemed necessary, for example, when management's
response is considered inadequate.
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