Video: Analytical & Other Procedures Objectives

This lesson covers the process of determining the suitability of substantive analytical procedures and how they can be used as tests of detail to provide evidence supporting financial assertions. The lesson delves into developing expectations of reported amounts or ratios, evaluating the precision of these expectations, and assessing their ability to identify misstatements in financial statements or disclosures. Additionally, the lesson discusses the importance of evaluating the reliability of data used in analytical procedures and addressing the significance of any differences discovered through the process. The timing and implications of conducting these procedures during the review phase are also explored.

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Video Transcript

Instructor: Nick Palazzolo

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Now, first off, we're going to want to determine the suitability of substantive analytical procedures. We're going to see how we have just normal analytical procedures, which are done during planning. They're not substantive procedures. But then we also have substantive analytical procedures. We can use analytical procedures as substantive testing, as test of detail. Not to get into that in our learning objectives. I know you're just like, can you just explain it already? Now, we will get to that in our lesson here today. We'll get into that and much more. And that's going to be used to provide evidence to support assertions. We're also going to develop an expectation of reported amounts or ratios, because that's the whole point of analytical procedures. We develop an expectation that revenue is going to increase by 5%. And guess what? We do an analytical procedure. It increased by 7%. Maybe that's something to investigate. It's up to you as the auditor to determine. But performing these analytical procedures and determine whether the expectation is sufficiently precise to identify a misstatement in the financial statements or disclosures. We're also going to want to evaluate the reliability of the data, which we use to develop these expectations in these analytical procedures. And lastly, we want to evaluate the significance of these differences. Should we investigate further? When are we going to do these procedures? Is it in the final review phase? If we find some issues and significant differences in the review phase, do we have to go back to our testing phase and do it all over again? We'll see that and talk about all of those concepts throughout the lesson. Let's dive right in. Have a good time.

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