Analytical procedures are one type of evidence-gathering procedure. According to auditing standards, there are five general forms of analytical procedures. Auditing standards also provide examples of five sources of information for analytical procedures.

Required:
A. Describe three of the five general forms of analytical procedures.
B. For each form, describe a typical source of the information for the form.
C. For each source, include any questions or concerns an auditor would have
about the reliability or relevancy of the source.


A) The five general forms of analytical procedures are:
i. Comparison of current-year account balances to one or more prior periods.
ii. Comparison of the current-year account balances to budgets and forecasts prepared by the company.
iii. Evaluation of the relationships of current-year account balances to other current-year balances to
determine if they conform to expectations based on the company's historical experience.
iv. Comparison of current-year account balances and financial ratios with similar information for the
industry in which the company operates.
v. Study of the relationships of current-year account balances with relevant nonfinancial information (e.g.,
physical production statistics).
B) The five sources of information for analytical procedures are:
i. Financial account information for prior period(s).
ii. Company budgets and forecasts.
iii. Financial relationships among accounts in the current period.
iv. Industry statistics.
v. Nonfinancial information, such as physical production statistics.
C) Concerns about relevance and reliability of the sources of information are:
i. Has the financial information from prior period(s) been audited?
ii. Are company budgets or forecasts generally accurate?
iii. What processes does the client go through to develop these?
iv. Are the industry statistics from a reliable source? Are the industry statistics specific enough to the client or the particular segment or division of the client being examined?
v. Has the nonfinancial information been audited? Have the controls over the production of the nonfinancial information been tested?

Business

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