Financial audit manual: update.

OCLC Number: 56114814 Excerpt: ... Planning Phase 225-PERFORM PRELIMINARY ANALYTICAL PROCEDURES. 01 During the planning phase, preliminary analytical procedures are performed to help the auditor • understand the entity's business, including current-year transactions and events; • identify account balances, transactions, ratios, or trends that may signal inherent or control risks, including any risks related to fraud ( see section 260 ); • identify and understand the significant accounting policies; • determine planning, design, and test materiality ( see section 230 ); and • determine the nature, timing, and extent of audit procedures to be performed.. 02 GAAS requires the auditor to perform preliminary analytical procedures ( AU 329 ). The resources spent in performing these procedures should be commensurate with the expected reliability of comparative information. For example, in a first-year audit, comparative information might be unreliable; therefore, preliminary analytical procedures generally should be limited.. 03 The auditor generally should perform the following steps to achieve the objectives of preliminary analytical procedures: a. Compare current-year amounts with relevant comparative financial information: The financial data used in preliminary analytical procedures generally are summarized at a high level, such as the level of financial statements. If financial statements are not available, the budget or financial summaries that show the entity's financial position and results of operations may be used. The auditor compares current-year amounts with relevant comparative financial information. Use of unaudited comparative data might not allow the auditor to identify significant fluctuations, particularly if an item consistently has been treated incorrectly. Also, the auditor may identify fluctuations that are not really fluctuations due to errors in the unaudited comparative data. A key to effective preliminary analytical procedures is to use in...