Auditing Exam

Take Home Exam #1

Part I.

1.a) With respect to Clarified AU 315 and Clarified AU 520, the requirements to apply analytical review procedures are as follows : The auditor should perform risk assessment procedures. These procedures include inquiries of management and others with valuable knowledge about the entity, analytical procedures, and observation and inspection. These analytical procedures should help the auditor to further understand the client’s business and may help the auditor determine where material misstatements may be more likely. When designing and performing these analytical procedures, the auditor needs to determine what procedures are suitable.

If the auditor determines that certain areas may be more prone to material misstatement, he/she should dive deeper into those areas. The auditor also must evaluate the reliability of the data taken to compute these analytical procedures. In this aspect, things like the source, comparability, and relevance are a few different things that should be looked at. The auditor may also look at the controls over the preparation of the information taken. The auditor must also develop certain expectations before completing these procedures – essentially predictions about what ratios may reveal. This is done by identifying plausible relationships that are reasonably expected to exist. He/she must determine what amounts are sufficiently precise. He/she must also determine how much of a difference is acceptable when performing these analytical procedures. If the auditor determines that differences are material, further inquiries to management about obtaining evidence should be done.

During the completion stage, the analytical procedures should be performed. After identifying earlier in the audit where material misstatement may be more likely to occur, the auditor should have sufficient evidence to explain any issues that these procedures may highlight.

b. Current Ratio: 1999 - $449,490,000/132,692,000 = 3.38...