B) monitoring activities Analytical procedures include analyzing inventory based on financial metrics such as gross margins, days inventory on hand, inventory turnover ratio, and costs of inventory historically. B) the audit committee of the board of directors. D) place limited reliance on the work performed by the internal audit staff. In general, work papers document the procedures applied, tests performed, information obtained, and conclusions reached in the audit. Management For differences that are due to misstatement (rather than a plausible explanation), the auditor must decide whether the misstatement is material (individually or in the aggregate). Likewise, in performing substantive analytical procedures, auditors need to consider a number of factors below: As a result, auditors may identify the risk of material misstatements that they overlooked. A) yes yes yes This would help them to assess the risks of material error or fraud that could occur on the sale figures in the financial statements. By analyzing variances, the company 2022 Universal CPA Review. D) company personnel comply with applicable rules and regulations. You can facilitate these procedures by forewarning your auditors about any recent changes to the company's operations, accounting methods, or market conditions. \text{Impact on:} & \text{Cash Balance} & \text{Cash-Basis Net Income} & \text{Accrual-Basis Net Income}\\ A) low likelihood that material misstatements will not be prevented or detected by internal 5) An act of two or more employees to steal assets and cover their theft by misstating the Detect material C) must consist of either reconciliation of amounts or substantive analytical procedures. Several factors influence the sufficiency of evidence gathered during a direct confirmation of trade receivables and other evidence may be required by an auditor to form an opinion in . (b)Provide$3,200ofconsultingservicestoalocalbusiness. For example, analytical procedures may help the auditor during the planning stage to determine the nature, timing and extent of auditing procedures that will be used to obtain audit evidence for specific account balances or classes of transactions. company must conclude that internal control over financial reporting is Besides these, analytical procedures can also help auditors in the following ways. Analytical procedures are evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data, according to an AICPA statement on audit standards related to analytical procedures. B) reconciliation of amounts C) The most important type of protective measure for safeguarding assets and records is the use Analytical Procedures in Audit: Meaning, Purpose, Types, Examples, Audit Evidence: Definition, Types, Examples, Procedure, Lead-Lag Relationships Between Industries of Developed Countries. D) prepared during the engagement are the property of the client once the audit bill is paid. D) authorization, payment, and recording. The primary purpose of analytical procedures in audit is to identify any inconsistent relationships. When performing analytics, auditors generally follow this five-step process: Any discrepancy is compared to the auditors threshold for analytical testing. Evaluate the likelihood of material misstatement. 5) Analytical procedures performed during the planning phase of the audit A) are used as a substantive test in support of account balances. 1.Calculation of gross profit margin and comparison with prior years 2.Recalculation of the non-current asset register 3.Comparison of current year payroll with prior year C) control environment 15) Without an effective ________, the other components of the COSO framework are unlikely Auditors need to use analytical procedures as. Provide a base for assessing the risks of material misstatements. not A) efficiency of operations \text{(b) Provide $\$ 3,200$ of consulting services} & \text{ } & \text{ } & \text{ }\\ As a result, accountants are often planning and evaluating the results of analytical procedures. A) No one person should be responsible for the custodial responsibility and the recording $400isforworkinMayand$200isforworkinApril. misstatements. In audit engagements, according to the AICPA statement AU Section 329, analytical procedures are used: To assist in planning the nature, timing and extent of other auditing procedures; As a substantive test to obtain audit evidence about particular assertions related to account balances or classes of transactions, and. 3) The PCAOB places responsibility for the reliability of internal controls over the financial Which of the following is true regarding those characteristics? \text{(e) Pay $\$ 200$ to advertise in a local} & \text{ } & \text{ } & \text{ }\\ \text{end of May.} to the achievement of the entity's objectives B) The auditors should determine how the company's risks should be managed. tie in Auditors need to perform analytical procedures at the end of the audit after obtaining sufficient appropriate audit evidence to form an overall conclusion whether the clients financial statements are reasonable and consistent with their understanding. Analytical procedures were also used during the substantive testing phase to audit the increases in property, plant, and equipment. Farin is now Abrigo, giving you a single source for all your enterprise risk management needs. A) cost/benefit relationship of the system of internal control. Analytical procedures are compulsory at two stages of the audit under ISA 520 namely the planning stage and the review stage. The auditing standards define analytical procedures as evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. C) are designed to facilitate the review and supervision of the work performed by the audit team C) adequate separation of duties 3. Audit reports prepared by the internal auditors indicate that the system is functioning D) the audit committee. Likewise, auditors use inquiry procedure for a wide range in the audit process. Auditing and Assurance Services, 15e (Arens) Chapter 8 Audit Planning and Analytical Procedures Learning Objective 8-1 1) A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the: A) inherent risk. Reinforce correct SAP security and GRC procedures with project teams and third party provider teams B) objectivity & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ B) make up the largest portion of audit documentation. Reach out to the professionals at any KraftCPAs location for answers to your financial questions. D) no yes. A) accountability To measure the degree of competition, they determined the total number of motel and hotel rooms within 3 miles of each La Quinta inn. These are the files the auditor creates to support their audit conclusions. B) no likelihood that material misstatements will not be prevented or detected by internal to result in effective internal control, regardless of their quality. A) low likelihood that material misstatements will not be prevented or detected by internal Making an impact in our industry and beyond. D) companies must use the COSO framework to establish internal controls. competence has a direct impact upon the Examination. An audit program for accounts receivable consists of all the audit procedures used to test accounts receivable. Which of the following is one of these two requirements? D) commitment to competence. B) efficiency and effectiveness of operations Similarly, it is helpful in obtaining audit evidence. B) The auditors should determine how the company's risks should be managed. Create draft audit reports for management review Discover what life is like with an award-winning culture and a team that Makes BIG Things Happen. control by management? A) the actions, policies and procedures that reflect the overall attitudes of management B) Segregation of duties would be violated if the same person authorizes the payment of a Save my name, email, and website in this browser for the next time I comment. 2. to the general ledger, but must state a positive or negative conclusion about the objective of the 2) The permanent audit file would usually include the C) yes no Chapter 8 Audit . misstatements. C) oversight activities 13) It is important for the CPA to consider the competence of the clients' personnel because their 9) The auditors primary purpose in auditing the client's system of internal control over financial What would the debit or credit to the direct material efficiency variance account be for the current Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). \text{(d) Pay $\$ 600$ to workers. Harbourfront Technologies. D) Employees who authorize transactions should have recording responsibility for these Interaction with audit, risk, and control personnel to explain and evaluate the structure and design of GRC processes. C) guarantee that the company complies with all laws and regulations. La Quinta defines profitable inns as those with an operating margin in excess of 50%; unprofitable inns are those with margins of less than 30%. Analytical procedures can also be applied during the actual audit engagement when the auditor is performing substantive tests of details to company financial statements, however, this is not required. procedures for financial reporting Document findings and interface with line management to confirm accuracy of . Analytical procedures can help make your audit less time-consuming and more effective at detecting errors and omissions. A) performed during the audit planning phase generally use aggregate data. One of these techniques includes analytical procedures. 11) Which of the following is they affect the financial statements. A) The audits of internal control and the financial statements provide reasonable assurance as to A) the internal auditors can express an opinion on the fairness of the financial statements. C) yes no These issues are B) their work cannot be used by the external auditors per PCAOB Standard 5. Auditors use analytics to understand or test financial statement relationships or balances. \end{matrix} B) increase the depth of the study and evaluation of administrative controls. (e)Pay$200toadvertiseinalocalnewspaperinMay.TotalsCashBalance+$1,500_________________________Cash-BasisNetIncome+$1,500_________________________Accrual-BasisNetIncome$0_________________________, 1) Analytical procedures are so important that they are required during the, 2) A benefit obtained from using industry averages is that it provides a(n). they affect the financial statements. Analytical procedures apply during the risk assessment process. Comparisons are the most common form of an analytical procedure. A) all frauds will be detected. What are the types of Analytical Procedures? After a discussion with a number of experienced managers, La Quinta decided to select one or two independent variables from each of the following categories: competition, market awareness, demand generators, demographics, and physical location. C) FASB These involve comparing information, both financial and non-financial. Ref: 34.450. D) should not be given to anyone outside the audit firm, even if a subpoena has been issued. In other words, analytical procedures are used throughout the audit engagement in audit planning, execution and review. internal control structure and procedures for financial reporting, 7) When management is evaluating the design of internal control, management evaluates department. B) auditors are concerned with the client's internal controls over the safeguarding of assets if C) examination of supporting documents A) senior management Relatively little is said about analytical procedures as part of the auditor's risk assessment. B) authorization, recording, and custody. C) the policies and procedures that help ensure that necessary actions are taken to address risks \text{(c) Purchase office supplies for $\$ 400$ on} & \text{ } & \text{ } & \text{ }\\ 11) In performing the audit of internal control over financial reporting, the auditor emphasizes Analytical Procedures 1889 AU Section 329 Analytical Procedures (Supersedes section 318.) Subsequently, auditors can compare this information with actual results as a part of analytical procedures. D) all of the above. Analytical procedures are the processes of evaluating financial information through trend, ratio or reasonableness of data in relation to other financial and non-financial data. C) yes no B) summary of the risk assessment procedures performed. Analytical procedures include the evaluation of financial information by analyzing plausible relationships. C) inherent limitations and reasonable assurance. Which of the following is Sageworks is now Abrigo, giving you a single source for all your enterprise risk management needs. control. Audit standards require analytical procedures at two stages during the audit: at the risk assessment (planning) phase and again at the end of the audit. Some of our partners may process your data as a part of their legitimate business interest without asking for consent. Audit procedures to identify pending litigation? taxes are most important at each level of government? D) system of control activities, 16) Which of the following is an accurate statement regarding control activities? Impacton:CashBalanceCash-BasisNetIncomeAccrual-BasisNetIncome(a)Receive$1,500fromcustomerswho+$1,500+$1,500$0werebilledforservicesinApril. responsibility and authority? B) absolute assurance and costs. 7) Which of the following best describes the purpose of control activities? A heavy SUV is a tax-smart option, R&D credit can have big impact for small businesses, Eight ways to insulate your construction company against rising costs, Prevent fraud at your company with a holistic approach, IRS raises standard mileage rate to 62.5 cents per mile, Medicare bad debt: Dont leave money on the table with your cost report, Form an independent expectation based on the company and its industry, Identify differences between expected and reported amounts, Brainstorm all possible causes for the discrepancy, Determine the most probable cause(s) for the discrepancy, Evaluate discrepancies to determine the nature and extent of any additional auditing procedures. For each analytical procedure performed during the audit, the work papers will explain the factors considered when developing the expectation and how the expectation compares to the recorded amounts or ratios developed from recorded amounts. These procedures apply during various stages in the auditing process. $400isforworkinMayand$200isforworkinApril._______________(e)Pay$200toadvertiseinalocalnewspaperinMay._______________Totals_______________\begin{matrix} vendor's invoice and also approves the disbursement of funds to pay the bill. This requirement comes from ISA 315. C) Documents should be designed to be understandable only by those who use them. Ratio analysis is also a prominent method used during analytical procedures. Analytical procedures that are used during the planning phase of an audit will enhance the auditors understanding of the clients operation as well as flag potential risks of material misstatements. A) management may establish appropriate policies and procedures but not act on them. B) analysis The analytical procedure could be used for the types of transactions or events that occur regularly or connect with others' transactions or events. 20) Which of the following is most correct regarding the requirements under Section 404 of the To learn more about standardizing analytical procedures with ProfitCents, request information here. misstatements. Join us on the journey to create a diverse and inclusive culture for our most valuable assets. Experienced auditors use analytical procedures in all stages of the audit. Use the login button here, or the link in the top navigation, to log in to your Sageworks products. transactions over financial reporting for public companies? A) A person who has temporary or permanent custody of an asset should account for that asset. people have see numerous times for their favorite books like this Chapter 8 Audit Planning Analytical Procedures Arens, but stop in the works in harmful downloads. Consider the following set of transactions occurring during the month of May for Bison Consulting Company. Our portfolio risk solutions and services are more robust than ever. linkedin | facebook | twitter | instagram, Phone: 615-242-7351 B) a material weakness. analytical procedures Inquiry Inquiry is the process of asking the clients for an explanation of the process or transactions related to financial statements. achieves its objectives and goals. Analytical procedures in this stage of audit are usually referred to as substantive analytical procedures. Reporting into the Head of Internal Audit for Operations & Professional Practices. For example, auditors may use analytical procedures to perform the examination of the relationship between the sales and cost of goods sold by comparing with the prior period or the industry average. B) achievement of the objectives of internal control. C) consider the potential for fraud A) yes yes It involves examining one figure relative to another. \text{(a) Receive $\$ 1,500$ from customers who} & \text{$+\$ 1,500$} & \text{$+\$ 1,500$} & \text{$\$ 0$}\\ C) it can reduce external audit costs by providing direct assistance to the external auditors. D) only apply to SEC companies. Write us: contact@kraftcpas.com, Analytical procedures are a critical part of the audit process. internal control over classes of transactions because (b) Sufficiency of the evidence from a direct confirmation test. The Senior Audit Manager is expected to recruit, hire, and develop assigned staff . PaymentisnotexpecteduntilJune._______________(c)Purchaseofficesuppliesfor$400onaccount. 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