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    The document is a practice note that provides supplemental guidance for applying ISA 520, which deals with analytical procedures used in audits. The practice note addresses overall considerations for using analytical procedures in public sector audits. It also provides additional guidance on substantive analytical procedures, investigating the results of such procedures, and the nature of analytical procedures for public sector audits. The practice note is intended to be read together with ISA 520.

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    The document is a practice note that provides supplemental guidance for applying ISA 520, which deals with analytical procedures used in audits. The practice note addresses overall considerations for using analytical procedures in public sector audits. It also provides additional guidance on substantive analytical procedures, investigating the results of such procedures, and the nature of analytical procedures for public sector audits. The practice note is intended to be read together with ISA 520.

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    28 views5 pages

    Issai 1520 PN

    Uploaded by

    Charlie Maine
    The document is a practice note that provides supplemental guidance for applying ISA 520, which deals with analytical procedures used in audits. The practice note addresses overall considerations for using analytical procedures in public sector audits. It also provides additional guidance on substantive analytical procedures, investigating the results of such procedures, and the nature of analytical procedures for public sector audits. The practice note is intended to be read together with ISA 520.

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    of 5

    The International Standards of Supreme Audit Institutions, ISSAIs, are issued by the

    ISSAI 1520 International Organization of Supreme Audit Institutions, INTOSAI. For more information visit
    www.issai.org

    Practice Note to ISA 520

    Analytical Procedures
    INTOSAI
    INTO S AI Pr o f e s si o n a l S t an d ar ds Co m mitt e e
    PSC-Secretariat
    Rigsrevisionen • Store Kongensgade 45 • 1264 Copenhagen K • Denmark
    Tel.:+45 3392 8400 • Fax:+45 3311 0415 •E-mail: [email protected]

    IN TO SA I

    E XP ERIE NT IA MUT UA
    EX P ERIEN TIA M UTU A
    OM NIBU S P RO DE ST
    OMNIBUS
    PRODEST

    INTOSAI General Secretariat - RECHNUNGSHOF


    (Austrian Court of Audit)
    DAMPFSCHIFFSTRASSE 2
    A-1033 VIENNA
    AUSTRIA
    Tel.: ++43 (1) 711 71 • Fax: ++43 (1) 718 09 69

    E-MAIL: [email protected];
    WORLD WIDE WEB: http://www.intosai.org

    This Practice Note in combination with the International Standard on Auditing (ISA) 520 “Analytical Procedures” issued by the
    International Federation of Accountants (IFAC) constitute ISSAI 1520.
    ISSAI 1520
    practice note 520

    Practice Note1 to International Standard on Auditing (ISA) 520

    Analytical Procedures

    Background

    This Practice Note provides supplementary guidance on ISA 520 – Analytical Procedures. It is read
    together with the ISA. ISA 520 is effective for audits of financial statements for periods beginning on or
    after December 15, 2009. The Practice Note is effective the same date as the ISA.

    Introduction to the ISA


    ISA 520 deals with the auditor’s use of analytical procedures as substantive procedures (“substantive an-
    alytical procedures”). It also deals with auditor’s responsibility to perform analytical procedures near the
    end of the audit that assist the auditor when forming an overall conclusion on the financial statements.
    ISA 3152 deals with the use of analytical procedures as risk assessment procedures. ISA 3303 includes
    requirements and guidance regarding the nature, timing and extent of audit procedures in response to
    assessed risks; these audit procedures may include substantive analytical procedures.

    Content of the Practice Note


    P1. The Practice Note provides additional guidance for public sector auditors related to:
    (a) Overall Considerations.
    (b) Substantive Analytical Procedures.
    (c) Investigating Results of Analytical Procedures.
    (d) Nature of Analytical Procedures.

    Applicability of the ISA in Public Sector Auditing

    P2. ISA 520 is applicable to auditors of public sector entities in their role as auditors of financial
    statements.

    1 All Practice Notes are considered together with ISSAI 1000, “General Introduction to the Financial Audit Guidelines.”
    2 ISA 315, “Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment,” paragraphs P6(b).
    3 ISA 330, “The Auditor’s Reponses to Assessed Risks,” paragraphs 6 and 18.


    Analytical Procedures
    ISSAI 1520
    practice notE 520

    Additional Guidance on Public Sector Issues


    P3. ISA 520 contains application and other explanatory material with considerations specific to
    public sector entities in paragraph A11 of the ISA.

    Overall Considerations
    P4. The objectives of a financial audit in the public sector are often broader than expressing an opin-
    ion whether the financial statements have been prepared, in all material respects, in accordance
    with the applicable financial reporting framework (i.e. the scope of the ISAs). The audit mandate,
    or obligations for public sector entities, arising from legislation, regulation, ministerial direc-
    tives, government policy requirements, or resolutions of the legislature may result in additional
    objectives. These responsibilities may include, for example, performing procedures and reporting
    instances of non-compliance with authorities, and the effectiveness of internal controls. However,
    even where there are no such additional objectives, there may be general public expectations in
    this regard. Public sector auditors may design and perform analytical procedures in light of these
    additional responsibilities. However, these procedures on their own may not be effective for
    meeting these additional responsibilities.

    P5. Analytical procedures related to program expenditure within the public sector are likely to
    include comparisons with non-financial data because there is normally less comparable finan-
    cial information to perform analytical procedures. Therefore, the evaluation of controls over the
    reliability of non-financial data used in the analytical procedures is important within the public
    sector.

    Substantive Analytical Procedures


    P6. When designing and performing substantive analytical procedures, either alone or in combination
    with tests of details, as stated in paragraph 5 of the ISA, public sector auditors may consider that
    analytical procedures do not normally provide evidence about certain additional objectives, such
    as compliance with authorities.

    P7. When designing analytical procedures, public sector auditors consider the information obtained
    and conclusions reached in related audit activities, including performance and other audits. When
    relying on other audit activities, public sector auditors evaluate whether the related objectives,
    assertions covered and tests performed are appropriate for the purpose of the financial statement
    audit.

    P8. Paragraph 5(d) of the ISA requires the auditor to determine the difference of recorded amounts
    from expected values that is acceptable without investigation. This determination is influenced by
    materiality, which in the public sector is influenced by the audit mandate and public expectations.
    ISSAI 13154 and ISSAI 13205 provide further guidance on this matter.

    4 ISSAI 1315, “Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.”
    5 ISSAI 1320, “Materiality in Planning and Performing an Audit.”


    Analytical Procedures
    ISSAI 1520
    practice note 520

    P9. When assessing the reliability of data as referred to in paragraph A12 (a) of the ISA, public sector
    auditors may use information obtained from other entities within the government even though
    they ultimately report to the same authority. For example, comparative data in the public sector
    may include comparisons between similar entities and/or programs.

    P10. When considering the guidance in paragraph A13 for performing analytical procedures, public
    sector auditors understand the design and may need to test the operating effectiveness of controls
    over the entity’s non-financial information used in analytical procedures.

    Investigating Results of Analytical Procedures


    P11. Public sector auditors consider that they may have additional responsibilities when management
    is unable to provide explanations for differences identified in performing analytical procedures
    referred to in paragraph A21 of the ISA. For example, public sector auditors in some audit
    environments, such as a Court of Accounts environment, may need to investigate further the
    underlying reasons for the lack of information and determine who is responsible.

    Definition of Analytical Procedures


    P12. In performing analytical procedures, either as substantive analytical procedures or to assist when
    forming an overall conclusion, as stated in paragraph A1 of the ISA public sector auditors may
    also consider relationships such as:
    • Expenditures versus budget or appropriations;
    • Benefit payments, such as child support and pensions versus demographic information;
    • Tax revenues versus demographic information or economic conditions or indicators;
    • Interest as a percentage of national debt compared to the government borrowing rate;
    • Results accomplished in relation to expenditure, where performance information is included as
    part of the financial statements; and
    • Government grants for economic and social development, e.g. grants for low income farmers
    and grants for school buildings, versus economic and demographic indicators.
    In order to be an effective procedure, such tests need to be at an appropriate level of detail.


    Analytical Procedures

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