Planning Activities

Question 1

Analytical Procedures

Definition

Types

When are they used?

What are the elements for success?

Answer 1

• Definition - Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data. Also called “tests of reasonableness”
• What kind of procedures used - typically simple comparisons, ratios, or trend analysis
• When are they used?
  • 1. For risk assessment (required!);
  • 2. For substantive purposes (widely used voluntarily, but not technically required); and
  • 3. As a final review (required!).
• Important elements of success
  
  • what assertion are we testing (completeness is common)
  • plausibility and predictibility of the relationship (meaning expectation)
  • Avilability and reliability of data used
  • Precision of Expectation