Page 127 - CA Inter Audit PARAM

CA Ravi Taori
Author’s Note

Summarized Answer

➢ Definition: -
• Evaluation of financial information (TBD)
Through analysis of plausible relationships among financial & non-financial data
• Step-1 Studying suitable plausible (probable) interrelationships in financial and non-financial
data,
• Step-2 Collecting reliable data
• Step-3 May or may not performing calculations, computing ratios percentages etc.
• Step-4 Then comparing them with relevant data or expected values and investigating unusual
differences

• Examples of Relationships – Among Elements of Financial Info / Between Elements of Financial &
Non-Financial Info

• Simple Comparisons to Complex Analysis

• Examples of various comparisons: - Prior Period, Trend Analysis / Budgets, Comparative Analysis /
Auditor’s Estimate, Predictive Analysis / Others in Industry, Inter Firm Analysis)

Substantive Analytical Procedures- Old Course -- (M18R/ M18E/N18M/N19M/M19R/N20E/SM20/
QNO
520.03 Techniques M20R/M21R/SM21/M22M/M23R)
Bhaskar CNO - SA520.040 New Course – (SM25)
Explain techniques available as substantive analytical procedures.
OR
Ratio analysis is useful for analysing asset and liability accounts as well as revenue and expense accounts.
An individual balance sheet account is difficult to predict on its own, but its relationship to another
account is often more predictable (e.g., the trade receivables balance related to sales). Explain stating
the techniques available as substantive analytical procedures.
OR
The design of a substantive analytical procedure is limited only by the availability of reliable data and
the experience and creativity of the audit team. Explain clearly stating the techniques available as
substantive analytical procedures.
OR
Discuss the techniques available as Substantive Analytical Procedures.
OR
Explain the commonly used technique in the comparison of current data with the prior period balance
or with a trend in two or more prior period balances.
Answer • Creativity / Experience / Reliable Data required for SAP
The design of a substantive analytical procedure is limited only by the availability of reliable data
and the experience and creativity of the audit team.

• Substantive analytical procedures generally take one of the following forms:
• Trend Analysis (Data Comparisons with previous year)
A commonly used technique is the comparison of current data with the prior period balance
or with a trend in two or more prior period balances. We evaluate whether the current
balance of an account moves in line with the trend established with previous balances for
that account or based on an understanding of factors that may cause the account to change.

• Ratio Analysis (Ratio Comparisons with other firms, like Inter firm analysis)
Ratio analysis is useful for analyzing asset and liability accounts as well as revenue and
expense accounts. An individual balance sheet account is difficult to predict on its own, but
its relationship to another account is often more predictable (e.g., the trade receivables
balance related to sales). Ratios can also be compared over time or to the ratios of separate
entities within the group, or with the ratios of other companies in the same industry.
• Financial ratios may include:
Trade receivables or inventory turnover
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