8.3: Burlingham Bees
Using Analytical Procedures as Substantive Tests

Using Analytical Procedures as Substantive Tests

1. The requirements related to developing an expectation and conducting analytical procedures when those procedures are intended to provide substantive evidence is provided by the reorganized Audit Standard 2305 Substantive Analytical Procedures effective December 31, 2016 in the following list: a. “Analytical procedures are an important part of the audit process and consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. Analytical procedures range from simple comparisons to the use of complex models involving many …show more content…

When designing substantive analytical procedures, the auditor also should evaluate the risk of management override of controls. As part of this process, the auditor should evaluate whether such an override might have allowed adjustments outside of the normal period-end financial reporting process to have been made to the financial statements. Such adjustments might have resulted in artificial changes to the financial statement relationships being analyzed, causing the auditor to draw erroneous conclusions. For this reason, substantive analytical procedures alone are not well suited to detecting fraud (PCAOB, AS 2305.10).” f. “The expected effectiveness and efficiency of an analytical procedure in identifying potential misstatements depends on, among other things, (a) the nature of the assertion, (b) the plausibility and predictability of the relationship, (c) the availability and reliability of the data used to develop the expectation, and (d) the precision of the expectation (PCAOB, AS 2305.11).”
The advantage of of developing an expectation at a detailed level rather than at an overall level is a greater level of precision could be obtained. a. “Expectations developed at a detailed level generally have a greater chance of detecting misstatement of a given amount than do broad comparisons. Monthly amounts will generally be more effective