Detailed Analysis: Overall Review of Audit and Analytical Procedures

This report provides an in-depth analysis of the overall audit process, with a specific focus on analytical procedures. It outlines the key steps involved, including developing independent expectations, defining significant differences, computing differences, and investigating significant findings to draw conclusions. The report also discusses the risks associated with analytical procedures, such as the potential for fraud detection limitations and the importance of understanding plausible relationships. It emphasizes the role of disaggregation, levels of assurance, and factors influencing the reliability of data. The review also covers preliminary analytical reviews for risk assessment and understanding the business environment. The report references academic literature to support the analysis of financial auditing and analytical procedures.

Running head: OVERALL REVIEW OF THE AUDIT
OVERALL REVIEW OF THE AUDIT
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1OVERALL REVIEW OF THE AUDIT
The analytical procedures is applied in the audit which is related financially for the
ratio purpose of the organization in which the comparison is done with the previous fiscal
years of the organization and also for the large profit and loss account(Glover, M, & Drake,
2014). There are various analytical procedures undertaken by the auditor as a part of the
overall review they are as following;
Independent expectation needs to be developed:
The development of the independent expectation is the most important analytical
procedures undertaken by the auditor. The exception is the prediction which is important in
audit, the predictions can be in various forms such as in number, in the form of percentage, a
direction or it can be in the form of approximation. These all forms are totally dependent on
the precision which is desired. The development of the analytical procedures helps in
developing the expectations by making identification of relationships like between the market
trends and revenue of the client that is based on the knowledge, business or on other trends
which is leading to an independent expectation. The expectation is also based on the ratio
amount, the prediction is based on the various types of forms which is useful for the financial
terms (Pike, Curtis, & Chui ,2013)
Significant difference needs to be defined:
The defining of the significant difference is the second step that is undertaken by the
auditor. In the process of designing and performing the analytical procedures the auditors
needs to consider the difference from the expectation which can be known through the
investigation. The difference that the auditor gets by doing the further investigation in terms
it is said to be as threshold. The term is defined as the values which are numeric or in terms
of percentages, the establishment of the threshold seems to be tough for the analytical
procedures, to get prevented from this prospective the threshold need to be determined by the

2OVERALL REVIEW OF THE AUDIT
auditor in the planning process. After the completion the significant difference needs to
checked for the clear clarifications so that it can be get that which area the correction is
needed. The threshold can be defined as the acceptable amount which relates to the
misstatement which is potential and this misstatement should not go out of the planning
materiality. The planning materiality should be small enough so that it is liable for the auditor
in rectifying the misstatements that is based on the material or it can be individually or when
it is aggregated with the misstatements (Gunny &Zhang, 2013).
Computing the difference:
The computation of the difference is the third step that is undertaken by the auditor.
The computation of the difference determines the comparison between the values which is
expected and the recorded amounts and the differences needs to be significantly identified. It
should be noted as on important basis that the computation of the differences needs to only
done when after the consideration of an expectation. The computation of the differences from
the balances which are prior based and then letting the outcome effect the difference that is
expected is not the appropriate way. The computation of the differences is very important
aspects that needs to be clarified for the substantive procedures related to analytical (Chan,
&Kogan, 2016)
Investigation of the significant differences and drawing the conclusions:
The drawing of the conclusion and investigation of the significant differences is the
fourth step that is undertaken by the auditor. The differences tell about the increased in the
likelihoods of the misstatement, the precision degree needs to be greater if the likelihood is
greater it is leading to the misstatement difference. The explanation needs to be in the full
amount and the difference is not only considered as a part that is exceeding the threshold. The
factors which is causing the difference needs to be gone through before, and not most

3OVERALL REVIEW OF THE AUDIT
important thing is that the new data needs to be verified by doing this it will help in showing
the impact that have on the expectations which is original in such a way that the new data had
been taken into consideration in the first place. The investigation needs to be done on the
unexpected changes which is occurring in the business or if there is changes in the accounting
treatments (Habib, 2013).
The fluctuations that may come due to the analytical procedures that has been
undertaken by the auditor. When analytical procedures have been undertaken by the auditor
there is a chance of occurring disaggregation. The analytical procedures are performed in a
detailed level which leads to the greater potential precision of the procedures. The analytical
procedures are leading to a high level may come to a significant which leads to offsetting,
and the differences that come in the attention of the auditors attention when the data is being
prepared on a disaggregated data.
The auditor helps in considering the level of assurance for the some assertions the
analytical procedures helps in providing the level of assurance which is appropriate but
according to some other assertions analytical procedures are not considered to be good and
useful because it does not work in an efficient way. When the analytical procedures are
designed there are certain risks which the auditor should see and must be taken into
consideration because these risks are effecting the management. The risks involve the
override which is allowing the adjustments outside the period of normal and at the end of the
financial. Because of this it may leads to changes in the artificial and through this the
financial statements can be analysed and because of this reason analytical procedures is not
suited well for detecting the frauds.
There is the possibility of the plausibility and predictability of the relationship when
analytical procedures are undertaken. The auditor needs to understand why the plausible

4OVERALL REVIEW OF THE AUDIT
relationship occurs because not every time but sometimes the data is related when the data is
not in the relation and sometimes when data is related it’s not related there is a diversification
because of the presence of the relationships which is not expected helps in providing the
proof. The assurance which is at the higher level come from the analytical procedures for
these predictable relationships needs to be developed which is leading the auditor to the
conclusion. In analytical procedure there is the formation of relationship for developing the
expectation. The relationships are relating to the income statement and balance sheet the
income statement is more predictable and the balance sheet is less predictable. The
relationship that the analytical procedures are involving is related to the transactions, when
the relationships involving the transactions lead to the management discretion. The process of
audit is required in the planning process and helps in completing the audit. The audit
procedure objective is that it helps in determining that the data used in analytical procedure to
be disaggregated and to what extent it needs to be disaggregated for the more detailed level.
The analytical procedures expectations is developed at a stage which is detailed which
is leading to big chance of detecting misstatement at the amount which is given than do the
broad comparisons. The risk of material misstatement can be secured by the factors which is
offsetting which is leading to increase the client operations which is more difficult and also
diversified in a manner. The different levels of analytical procedure provide the different
levels of assurances for example the total rental incomes. Because of the nature of assertion
the determination of the analytical procedure is being affected. There are some conditions
which is leading to unusual transactions, events and also related to changes in the accounting,
changes in the business, fluctuations which are random and also the risk of misstatements.
The effect of analytical procedure is that it leads to the reliability of the data in an expressed
way the information is very useful. There is a direct relation between the data predictability
and it is based on the expectation quality that is based on internal and external data the

5OVERALL REVIEW OF THE AUDIT
internal data comes from the records and systems that come from the audit and the external
data is collected from the research which is independent and that are not related to
manipulations by the persons. The ability of the auditors in predicting accounting
relationships can be increased by developing the expectation (Plumlee, Rixom & Rosman,
2014).
The analytical review which is preliminary are introduced which helps in performing
and also helps in obtaining and understanding the business and its environment. The
preliminary analytical review is used for the assessment of the risk. If there is better
understanding of the relations which is relating to the financial helps in for evaluation of the
results which is based on analytical procedures where there is requirement of the knowledge
of the clients and indicating the organizations in which those clients are working. The
analytical procedure application is dependent upon the expectation between the data continue
in the absence of the conditions to the contrary.

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References
Chan, D. Y., & Kogan, A. (2016) Data analytics: Introduction to using analytics in
auditing. Journal of Emerging Technologies in Accounting, 13(1), 121-140.
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.
Gunny, K. A., & Zhang, T. C. (2013). PCAOB inspection reports and audit quality. Journal
of Accounting and Public Policy, 32(2), 136-160.
Habib, A. (2013). A meta-analysis of the determinants of modified audit opinion
decisions. Managerial Auditing Journal, 28(3), 184-216.
Pike, B. J., Curtis, M. B., & Chui, L. (2013). How does an initial expectation bias influence
auditors' application and performance of analytical procedures The Accounting
Review, 88(4), 1413-1431.
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.