Analytical Procedure:

[kertaskajang]

Hi guys,

I just wondering...how can we apply analytical procedure in these areas:

(i) Payroll
(ii) Trade Receivables
(iii) Trade Payables
(iv) The entity going concern..

and etc2...

hope you guys can help me with these....

Thanks and Have a nice day

:)

[Hamdy Hafez]

Hi guys,

I just wondering...how can we apply analytical procedure in these areas:

(i) Payroll
(ii) Trade Receivables
(iii) Trade Payables
(iv) The entity going concern..

and etc2...

hope you guys can help me with these....

Thanks and Have a nice day

:)
good question wait for the answer soon (just I'll come again :GEEK:)

[Dazy]

Hi kertaskajang,

‘Analytical procedures’ is covered by ISA 520. Analytical procedure is an audit procedure which seeks to provide evidence as to the completeness, accuracy and validity of the information contained in the accounting records or in financial statements.

i) Payroll

Comparison of current year payroll cost with the previous year payroll cost
Comparison of current payroll cost with the budget
Study of relationship between financial and relevant non-financial information such as study of payroll cost to number of employees or number of employees to production

ii) Trade receivables / Trade payables – verification of trade receivables / payables may be carried out by employing the following procedures:
1. Examination of records
2. Direct confirmation procedures (circularisation procedure)
3. Analytical review procedures

Analytical review procedures include:

comparison of closing balances with the corresponding figures for the previous year
comparison of the relationship between current year receivable / payables balances and the current year sales / purchases with the corresponding budget figures.
comparison of current year’s aging schedule with the corresponding figures of previous year.
comparison of significant ratios relating to trade receivables like average collection period and average payment period relating to trade payables with the industry norms, if available.

iii) Going concern


Comparing information for a period
Anticipated results, such as budget forecasts
Auditor’s knowledge of the business
Known trends
Similar industry information such as comparison of the entity’s ratio with industry averages or with other entities of comparable size in the same industry

[siddharth]

Analytical procedures can be used in the following ways

1. Payroll
Payroll for the current year can be calculated by using previous year cost adjusted for inflation and change in staff and can be compared with Actual year cost. Any significant change can be investigated. This method is called Proof in Total. Another method is to compare payroll cost with budget

2. Receivables
Calculate the receivable days using the formula (Receivables*365)/(Credit Sales) for current year and previous year and compare. If it has increased over previous year then there might be overstatement of receivables due to dispute with customer or bad debts. Comparison with budgets and previous years can also be done.

3. Payables
Calculate payable days using the formula (Payables *365) / (Credit purchases) for current year and previous year and compare. If increased it might be due to cash flow problems.

I dont know how to assess going concern with analytical procedure.