Analytical Procedures: Coca-Cola Company Risk and Substantive Analysis

This report delves into the application of analytical procedures in auditing, examining both risk assessment and substantive procedures. It begins by outlining the importance of analytical procedures in understanding the business and identifying potential risks, referencing ASA 315. The report then explains how these procedures are used to evaluate a company's business strategy and management quality. Further, it details how analytical procedures are used to develop expectations and determine significant differences, as per ASA 520. The report uses the Coca-Cola Company as a case study, illustrating the practical application of these procedures and the importance of setting appropriate thresholds for materiality and misstatements. The references include key publications on continuous auditing and analytic monitoring.

Running head: ANALYTICAL PROCEDURES
Analytical Procedures
Name
Institution

ANALYTICAL PROCEDURES
Analytical processes refer to the procedure in auditing that helps auditors get
information concerning changes in the business and thus point out potential risks in other
audit processes by comparing financial and non- financial data. The analytical procedures are
used in carrying out risks assessments and as substantive methods during the audit.
Analytical procedures as risk assessment procedures (ASA 315)
Analytical procedure Explanation
Understanding the nature of the organization. In this, several questions are asked.
One is on the market overview of the
company, where the main clients of the
company are identified. The other aspect is
on who regulates the stated clients, where the
Securities and Exchange Commission is the
common regulatory agency used. The
business strategy of the company is required
in this step. Coca-Cola Company is the
organization in this case, where the clients
are the non -alcoholic drinks consumers. The
strategy used by the company is ensuring that
the goods demanded by the buyers are
supplied satisfactorily. Where the market
served by the company and the strategy used
are compatible, like the case with Coca-Cola,
it is said that the company is safe from risks.
Evaluating the quality of the organization’s The type of management used in an

ANALYTICAL PROCEDURES
management. organization determines the success to be
attained (Chan & Vasarhelyi 2018). For
example, a company where employees have
been retained for many years could be said to
have a stable type of management. Also,
where financial restatements are not
common, it is a sign that the management is
working efficiently. Coca-Cola Company has
retained most of its workers, indicating that
the company’s management is suitable.
Analytical procedures as substantive procedures during audit (ASA 520)
Analytical procedure Explanation
Developing an independent expectation The development of a precise and
objective expectation is vital in substantive
procedures (Vasarhelyi et al., 2018). An
expectation refers to foresee of a known
amount, which could be a specific number,
percentage or approximation. The single
expectation is developed by pointing out the
plausible relationships, for example, market
trends and the clients' revenues. Notably, the
expectation should be based on logical
reasoning, which is met by having significant

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knowledge about the business, trends in the
industry and its nature.
Defining a significant difference In this way, the auditor determines the
difference between the expectations that
could be accepted without further research
(ISA 520). The difference that is
significantly accepted is known as the
threshold. Notably, the threshold could be
based on figures for percentages of the items
being evaluated. Developing a suitable
threshold is important in substantive analysis,
which should be developed at the planning
stage, to avoid biases in judgment. On the
other hand, the threshold expected is the
accepted amount of possible misstatement
which indicates that it should not get over the
planning materiality. In addition, it has to be
small, so as the auditing team could point out
misstatements which could be material either
as one or when aggregated with other
portions. Therefore, this is an important way
of carrying out substantive analysis in the
organization.

ANALYTICAL PROCEDURES
References
Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of continuous auditing.
In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing
Limited.
Vasarhelyi, M. A., Alles, M. G., & Kogan, A. (2018). Principles of analytic monitoring for
continuous assurance. In Continuous Auditing: Theory and Application (pp. 191-217).
Emerald Publishing Limited.