Page 52 - CA Inter Audit PARAM

CA Ravi Taori
QNO Analytical Procedure as substantive test for Risk Old Course -- (N20R/N23R)
315.06 Assessment Bhaskar CNO- SA315-P1.040 New Course – (SM25)
Analytical procedures performed as risk assessment procedures may identify aspects of the entity of which
the auditor was unaware and may assist in assessing the risks of material misstatement in order to provide
a basis for designing and implementing responses to the assessed risks. Explain in detail.
➢ New Information which auditor was unaware
Analytical procedures performed as risk assessment procedures may identify aspects of the entity of
which the auditor was unaware and may assist in assessing the risks of material misstatement in
order to provide a basis for designing and implementing responses to the assessed risks.

➢ Financial as well as non-financial
Analytical procedures performed as risk assessment procedures may include both financial and non-
financial information, for example, the relationship between sales and square footage of selling
space or volume of goods sold.

➢ Unusual Items
Analytical procedures may help identify the existence of unusual transactions or events, and
amounts, ratios, and trends that might indicate matters that have audit implications. Unusual or
unexpected relationships that are identified may assist the auditor in identifying risks of material
misstatement, especially risks of material misstatement due to fraud.

However, when such analytical procedures use data aggregated at a high level (which may be the
situation with analytical procedures performed as risk assessment procedures), the results of those
analytical procedures only provide a broad initial indication about whether a material misstatement
may exist.

➢ Results of Analytical Procedures & Other Information will be helpful
Accordingly, in such cases, consideration of other information that has been gathered when
identifying the risks of material misstatement together with the results of such analytical procedures
may assist the auditor in understanding and evaluating the results of the analytical procedures.

QNO— Identifying Type of Risk Assessment Procedure New Course – (SM25)
315.06.20 Bhaskar CNO - SA315.P1.040
On perusing financial statements of Jo Jo Limited put up for audit, it is observed by the auditor that
current ratio has improved from 1.20:1 (in preceding year) to 1.75:1 (in current year). Identify what kind
of risk assessment procedures are being performed by auditor? Has it any relation with listing of the
company next year on Bombay Stock Exchange?
Answer Financial as well as Non-financial
Analytical procedures performed as risk assessment procedures may include both financial and non-
financial information, for example, the relationship between sales and square footage of selling space or
volume of goods sold.

New Information which auditor was Unaware
Analytical procedures performed as risk assessment procedures may identify aspects of the entity of
which the auditor was unaware and may assist in assessing the risks of material misstatement in order to
provide a basis for designing and implementing responses to the assessed risks.

Unusual Items
Analytical procedures may help identify the existence of unusual transactions or events, and amounts,
ratios, and trends that might indicate matters that have audit implications. Unusual or unexpected
relationships that are identified may assist the auditor in identifying risks of material misstatement,
especially risks of material misstatement due to fraud. However, when such analytical procedures use
data aggregated at a high level (which may be the situation with analytical procedures performed as risk
assessment procedures), the results of those analytical procedures only provide a broad initial indication
about whether a material misstatement may exist.

Discussion & Conclusion.
It is noticed by the auditor that current ratio has improved from 1.20:1 (in preceding year) to 1.75:1 (in
current year). The auditor is using “analytical procedures” as risk assessment procedures. Current ratio

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