ISA 520 Summary Analytical procedures

ISA 520 definitions

Analytical procedures – definition

Means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount.

ISA 520 Scope

ISA 520 deals with the auditor’s use of analytical procedures as substantive procedures;

at the end of the audit that assist the auditor when forming an overall conclusion on the financial statements;
use of analytical procedures as risk assessment procedures; and
use of substantive analytical procedures during the course of audit.

ISA 520 Effective date 15 December 2009

ISA 520 Objective

The objectives of the auditor are:

To obtain relevant and reliable audit evidence when using substantive analytical procedures; and
To design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity.

ISA 520 Requirements

ISA 520 require auditor in respect of designing and performing analytical procedures to;

Determine the suitability of particular substantive analytical procedures for given assertions, taking account of the assessed risks of material misstatement and tests of details, if any, for these assertions;
Evaluate the reliability of data from which the auditor’s expectation of recorded amounts or ratios is developed, taking account of source, comparability, and nature and relevance of information available, and controls over preparation;
Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently precise to identify a misstatement that, individually or when aggregated with other misstatements, may cause the financial statements to be materially misstated; and
Determine the amount of any difference of recorded amounts from expected values that is acceptable without further investigation.

ISA 520 require auditor to perform analytical procedure near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity.

Investigating Results of Analytical Procedures

ISA 520 require auditors to identify fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount, the auditor shall investigate such differences by:

Inquiring of management and obtaining appropriate audit evidence relevant to management’s responses; and
Performing other audit procedures as necessary in the circumstances.