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The effective steps for risk assessment to identify the risks regarding the misstated data in the financial records - Essay Example
It is necessary for the auditor to perform effective steps for risk assessment to identify the risks regarding the misstated data in the financial records, the affirmation level and auditor should use the analytical procedures for the risk assessment. …
The analytical procedures can be described as ‘evaluating the financial records by analyzing the credible relationship between the financial records and non-financial records’. It can be also included that ‘such analysis is mandatory to identify the difference or inconsistency of relevant data or the difference between provided data and the estimated values’ (ISA/HKSA 520(4)). The basic principle to apply the analytical procedures is the expected existence of the credible relationship may occur and the analytical procedures may carry on in such circumstances in the non-appearance of the opposite factors.
Defining the purposes
Auditors use analytical procedures in the entire audit course to achieve the three main purposes of audit:
1) Preliminary analytical review
These are the introductory analytical reviews, which assist the auditors to get an idea about the business and industry. They can start with reviewing the previous financial records, performance of industry and the competitors. This will lead them to decide the nature of audit, the time period required and the level of analytical procedures. Basically, preliminary analytical reviews help to design the strategies and plans to conduct the audit. ...