Acca aaa s21 Notes

You should recollect from your earlier studies that analytical procedures may be applied at 
three stages of the audit:
๏
Planning
- this is a requirement (ISAs 300 & 315)
๏
Substantive procedures 
- this is optional (ISA 520)
๏
Final review 
- this is a requirement when forming an overall conclusion (ISA 520)
Performing substantive analytical procedures does 
not
mean, for example, comparing two amounts, 
asking management why there is a difference and concluding that the explanation is reasonable. Yes, 
a comparison will be made, but the auditor must be able to:
๏
“develop an expectation …” – this must be based on verifiable data and plausible relationships
๏
which is “sufficiently precise to identify material misstatement” – this may require the 
disaggregation of data
๏
“determine the amount of any difference (between recorded amount and expectation) that is 
acceptable without further investigation” – the maximum acceptable difference (‘threshold’) 
may be a numerical amount or a % of the item being tested.
So, for example, the number of employees in a work force, the hours they work and their rates of pay 
are verifiable, and the auditor calculates an expected payroll cost of $690,00. The auditor determines 
5% to be the threshold. This expectation is then compared with the reported payroll cost, say it is 
$720,000. The difference, $30,000 is 4.2%. This provides sufficient evidence without any need to 
perform tests of detail on the payroll. Another example is depreciation expense.
September 2021 to June 2022 exams
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