Acca aa s21 Notes

Final review (ISA 520)
 
Here, near the end of the audit, the partner stands back 
and looks at the financial statements as a whole. Do the 
figure seem to make sense?
Analytical procedures 
must
be used at the 
planning stage
to assess whether or not the financial 
statements are consistent with the auditor's understanding of the entity. If they believed that the 
entity was substantially dealing in cash transactions yet it had a large receivables balance they might 
wonder why. 
If the receivables balance changes dramatically from one year to the next, but sales hadn’t really 
changed, the auditors might begin to question the recoverability of those balances. If the days of 
inventory held by the organisation rapidly increased they might begin to worry about the valuation of 
inventory and whether or not it could all be sold at above cost.
Auditors can look at how expenses move. If a business keeps about the same level of activity you 
wouldn’t expect the expenses such as telephone, post, heating, and lighting to increase much more 
than the rate of inflation.
If, however, the telephone costs had increased markedly the auditors need to find out why. It might 
be because the company had gained an important overseas customer and there are now many high 
cost overseas telephone calls. If the increase can’t be explained in a reasonable manner then an error 
may have been made and wrong amounts may have been posted to the telephone account.
In responding to assessed risks, the auditor may determine that only tests of details are appropriate.
Therefore, substantive analytical procedures are 
not
a requirement. However, analytical procedures 
must
be performed as a 
review procedure
when forming an overall conclusion on the financial 
statements.