Analytical procedures are performed as an overall review of the financial statements at the end of the audit to assess whether they are consistent with the auditor’s understanding of the entity. Final analytical procedures are not conducted to obtain additional substantive assurance.

Reasonability is a legal term. The scale of reasonability represents a quintessential element of modern judicial systems and is particularly important in the context of international disputes and conflicts of laws issues. The earliest recorded use of the term reasonability goes back to Roman times.

One quick and effective method to determine whether a transaction stream requires further investigation is the reasonability test. This test requires understanding the relationship between two or more components such as a balance sheet amount and its corresponding income statement amount.

Analytical procedures are performed at three stages of audit: at start, in middle and at end of audit. These three stages are risk assessment procedures, substantive analytical procedures, and final analytical procedures.

Substantive tests verify whether information is correct, whereas control tests determine whether the information is managed under a system that promotes correctness. Some level of substantive testing is required regardless of the results of control testing.

As goods are received from vendors, a receiving report is prepared by the client. Which of the following types of audit evidence is the most persuasive? Bank statements obtained from the client.

(1) Information obtained indirectly from outside sources is the most reliable audit evidence. (2) To be reliable, audit evidence should be convincing rather than merely persuasive.

Which assertions may be tested for the “account balances” category of management assertions? Existence, rights and obligations, completeness, valuation and allocation.

Purchase Orders

What type of evidence would provide the highest level of assurance in an attestation engagement? Evidence secured solely from within the entity.

The audit can be conducted internally by employees of the organization or externally by an outside Certified Public Accountant (CPA) firm.

GAAP (Generally Accepted Accounting Principles) ensures to have some standards in preparing the financial statements (accounting aspect) of a company, while GAAS (Generally Accepted Auditing Standards) provides a framework to prepare a transparent and reliable audit report of a company.

Analytical procedures

The five types of audit tests used to determine whether financial statements are fairly stated are: risk assessment procedures, tests of controls, substantive tests of transactions, substantive analytical procedures, and tests of details of balances.

Auditors are responsible for determining whether financial statements are materially misstated, so upon discovering a material misstatement they must bring it to the attention of: A) regulators.

Tests of control are only performed when the auditor believes that the control risk is low, enabling them to verify this assessment. However, a test of details is almost always required to obtain sufficient audit evidence.

Four Types of Test of Controls

• Inquiry.
• Observation.
• Inspection.
• Re-performance.

The following five items are classified as assertions related to the presentation of information within the financial statements, as well as the accompanying disclosures:

• Accuracy.
• Completeness.
• Occurrence.
• Rights and obligations.
• Understandability.

Section 138 (1) Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.