Page 132 - CA Inter Audit PARAM

CA Ravi Taori
QNO Analytical Procedures -- Developing Expectations Factors Old Course – (M22R)
520.08 Bhaskar CNO - SA520.160
Discuss the matters relevant to the auditor’s evaluation of whether the expectation can be developed
sufficiently precisely to identify a misstatement that, when aggregated with other misstatements, may
cause the financial statements to be materially misstated.
Answer Matters relevant to the auditor’s evaluation of whether the expectation can be developed sufficiently
precisely to identify a misstatement that, when aggregated with other misstatements, may cause the financial
statements to be materially misstated, include:
(i) The accuracy with which the expected results of substantive analytical procedures can be predicted.
For example, the auditor may expect greater consistency in comparing gross profit margins from one period
to another than in comparing discretionary expenses, such as research or advertising.
(ii) The degree to which information can be disaggregated.
For example, substantive analytical procedures may be more effective when applied to financial information
on individual sections of an operation or to financial statements of components of a diversified entity, than
when applied to the financial statements of the entity as a whole.
(iii) The availability of the information, both financial and non-financial.
For example, the auditor may consider whether financial information, such as budgets or forecasts, and non-
financial information, such as the number of units produced or sold, is available to design substantive
analytical procedures. If the information is available, the auditor may also consider the reliability of the
information.

Analytical Procedures (Investigating results) Old Course –
QNO
520.09 Bhaskar CNO - SA520.180 (M19R/SM20/M21E/SM21/M22R/M23R/N23M/N23E)
New Course -- (SM25)
The statutory auditor of MNO Ltd., CA Kishore identifies certain inconsistencies while applying analytical
procedures to the financial and non-financial data of MNO Ltd. What should CA Kishore do in this case with
reference to SA 520 on “Analytical Procedures”? Explain how he would investigate such differences.
OR
If analytical procedures performed in accordance with SA 520 identify fluctuations or relationships that are
inconsistent with other relevant information or that differ from expected values by a significant amount,

explain how the auditor would investigate such differences.
OR
While conducting the audit of PDP Ltd. for the financial year 2022-23, the statutory auditor identified certain
inconsistencies while applying analytical procedures to the financial and non-financial data of PDP Ltd. Can
statutory auditor investigate results of Analytical Procedures duly performed in accordance with SA 520?
Discuss.
Answer ➢ If analytical procedures performed in accordance with this SA 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

Audit evidence relevant to management’s responses may be obtained by evaluating those
responses taking into account the auditor’s understanding of the entity and its environment,
and with other audit evidence obtained during the course of the audit.
• Performing other audit procedures as necessary in the circumstances.

The need to perform other audit procedures may arise when, for example, management is unable to
provide an explanation, or the explanation, together with the audit evidence obtained relevant to
management’s response, is not considered adequate.
Conclusion: In the present case CA Kishore identifies certain inconsistencies while applying analytical
procedure to financial or non financial data of ABC Ltd. CA Kishore should inquire the management
of ABC Ltd, and obtain sufficient and appropriate audit evidences relevant to the management
response. Further CA Kishore should also perform other audit procedures, if required in the
circumstances of the case to obtain further sufficient and appropriate evidence.

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