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QNO Analytical Procedure- trade receivables #Unique Old Course -- (P16M/M19E/M21R/N21M)
520.13
Describe Analytical Review Procedures in Audit. Briefly discuss analytical procedures for verification of trade
receivables.
OR
Mention the Analytical Review procedures that may be useful as a means of obtaining audit evidence
regarding various assertions relating to Trade receivables, loans and advances.
Answer ➢ Analytical Review Procedure:
As per SA 520, Analytical Procedure means analysis of financial information through analysis of
relationship among financial and non-financial data. It includes comparison of the entity’s financial
information with comparable information with prior period, anticipated results of the entity like
budgets etc. or expectations of auditor and similar industry information. Therefore, an analytical
review procedure assists the auditor in planning the nature, timing and extent of other audit
procedures. It is an auditing procedure based on ratios among accounts and tries to identify significant
changes. Analytical review procedures can be used in the consideration of risks and/or as direct tests
of balances. When deciding whether to incorporate analytical review procedures into the examination
program as substantive tests of balances, the examiner should consider the extent to which the
underlying data should be tested.

➢ Analytical Procedures in case of trade receivables:
• Following are the analytical review procedures which may often be helpful as a means of
obtaining audit evidence regarding the various assertions relating to trade receivables-
• B - comparison of actual closing balances of trade receivables with the corresponding
budgeted figures, if available;
• B -Check the percentage of bad debts of previous years and current year.
• I - comparison of significant ratios relating to trade receivables with the industry norms,
if available.
• C- Check whether there is any change in credit policy of the organization.
• E- Find the reasons of major variations in the estimated values and actual values.
• P-comparison of closing balances of trade receivables with the corresponding figures for
the previous year;
• S-comparison of the relationship between current year trade receivable balances and
the current year sales with the corresponding budgeted figures, if available;
• S-comparison of significant ratios relating to trade receivables with similar ratios for
other firms in the same industry, if available;
• comparison of current year’s ageing schedule with the corresponding figures for the
previous year;

• These are only an illustrative list of analytical review procedures which an auditor may employ
in carrying out an audit of trade receivables. The exact nature of analytical review procedures
to be applied in specific situation is a matter of professional judgment of the auditor.
Author’s Note
• Shortcut for Shortcut to remember
Audit using B2-I-C-E-P-S2

QNO Factors affecting analytical procedures Old Course -- (N20E)
520.20 Bhaskar CNO - SA520.240
With respect to SA 520 "Analytical procedures". Explain the following factors to be considered by the auditor
for substantive audit procedures.
(i)Account type (ii) Predictability (iii) Nature of Assertion.

(i)Account type:
Substantive analytical procedures are more useful for certain types of accounts than for others. Income
statement accounts tend to be more predictable because they reflect accumulated transactions over a period,
whereas balance sheet accounts represent the net effect of transactions at a point in time or are subject to
greater management judgment.

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