1AUDITING AND ASSURANCE The ASA 315 is an Australian Accounting Standard that deals with the responsibility of the auditor in the assessmentandidentification of the material misstatement risk in the financial report of the company. The mechanism is such that it understands the company and its environment that includesthe internal control of the organisation. On the other hand the ASA 520 is an Australian accounting standard that deals with the auditor’s use of analytical procedures as substantive procedures at the end of the audit that assist the auditor when forming an overall conclusion on the financial statements (Rezaee, et al., 2018). The two ways in which analytical procedure is used as risk assessment procedures During the audit process, the risk assessment procedures as per the analytical procedure are to evaluate the risk that material misstatement exists. This is a very important step because the whole point of a financial statement audit is finding out if the financial statements are materially correct. The analytical procedure enables the process of risk assessment in the following ways: Analysis of the Ratio–It includes the comparison, across time or to a benchmark, of relationships between financial statement accounts and between an account and non- financial data. Testing of reasonableness– The mechanism takes place through the study of accounts, or changes in accounts within the accounting periods, that involves the development of a model to form an expectation based on financial data, non - financial data, or both (Brown-Liburd, Issa, & Lombardi, 2015).
2AUDITING AND ASSURANCE The two ways in which analytical procedure is used as substantive procedures during the audit: There are manyways of analytical procedures can be used as substantive procedures and it has an impact on the exactness of the expectation (William,Glover&Prawitt, 2016). The auditor chooses among the two procedures based on his objectives for the mechanism: Inspection of the inventory: Inspection deals with the examination of the quality of the companies and details about the mechanism of enforcing company policies and procedures to encourage that attitude throughout the organization. The evaluation of themanagementattitudecanbedonethroughtheprocessof interviews(Chan&Vasarhelyi,2018).Anothermeansisnoticinghighemployee turnover, which can indicate employees are seeking other employment because upper management fails to maintain a quality system of reporting Observation of the fixed assets: The observation is to observe the staffs and take a count of physical inventory. It gives the opportunity to view the company’s operations that have been represented in the books and records and check the company’s internal controls. The various ratio and trend analysis are also done to assess the risk. In case the auditor needs a high level of assurance from a substantive analytical procedure, he should develop a relatively precise expectation by selecting an appropriate analytical procedure. Thus, determining which type of substantive analytical procedure to use is a matter of professional judgment. Each of the types of mechanism uses a different technique to form an expectation. They are ranked from lowest to highest in order of their inherentprecision(Arens,Elder,Beasley&Hogan,2016).Scanninganalyticsare different from the other types of analytical procedures in that scanning analytics search
3AUDITING AND ASSURANCE within accounts or other entity data to identify anomalous individual items, while the other types use the total financial information. Analyticalproceduresasrisk assessment procedures(ASA315) Analytical ProcedureExplanation 1.Theanalyticalprocedure can be used to understand thetrendanalysisby evaluatingthefinancial statementsdevelop expectationthatarefor anticipated changes As perASA315, itdeals with inspectionofthebooksof accountofthewoolsworth company and assessing the risk with the help of the various financial statements and ratio analysis(Glover,Prawit,& Drake, 2014).T a I s atech fet 9f 2.To use the ratio analysis for understanding the risk of the woolsworthbyassessing the ratios. The observation is to observe the staffs and take a count of physical inventory. It gives the opportunitytoviewthe company’soperationsthat have been represented in the books and records and check
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4AUDITING AND ASSURANCE thecompany’sinternal controls. The various ratio and trend analysis are also done to assess the risk. Analyticalproceduresas substantiveprocedures during audit (ASA520) Analytical procedureExplanation 1.Inspection of the inventoryThe comparison, across time or toayardstick,ofaffairs betweenfinancialstatement accounts and between financial andnon-financialdata.The ratioofthewoolsworth company are to be assessed in order to find out the various procedures as under ASA520 duringtheprocessof audit(Alles, Kogan&Vasarhelyi, 2018). 2.Observation of the fixed assetsThemechanismtakesplace throughtheexaminationof accounts,orchangesin accountsbetweenaccounting
5AUDITING AND ASSURANCE periods,thatinvolvesthe developmentofamodelto form an expectation based on financial data, non - financial data,orbothofthewools worth company in accordance with the ASA520,that deals with the substantive procedures during the audit(Chou, 2015).
6AUDITING AND ASSURANCE References Alles, M. G., Kogan, A., &Vasarhelyi, M. A. (2018). Putting continuous auditing theory into practice: Lessons from two pilot implementations. InContinuous Auditing: Theory and Application(pp. 247-270). Emerald Publishing Limited. Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2016).Auditing and assurance services. Pearson. Brown-Liburd, H., Issa, H., & Lombardi, D. (2015). Behavioral implications of Big Data's impactonauditjudgmentanddecisionmakingandfutureresearch directions.Accounting Horizons,29(2), 451-468. Chan, D. Y., &Vasarhelyi, M. A. (2018). Innovation and practice of continuous auditing. InContinuous Auditing: Theory and Application(pp. 271-283). Emerald Publishing Limited Chou,D.C.(2015).Cloudcomputingriskandauditissues.ComputerStandards& Interfaces,42, 137-142.. Glover, S. M., Prawitt, D. F., & Drake, M. S. (2014). Between a rock and a hard place: A path forward for using substantive analytical procedures in auditing large P&L accounts: Commentary and analysis.Auditing: A Journal of Practice & Theory,34(3), 161-179. Plumlee, R. D., Rixom, B. A., &Rosman, A. J. (2014). Training auditors to perform analytical procedures using metacognitive skills.The Accounting Review,90(1), 351- 369.