Why do you think analytical review is necessary in review of balance sheet and profit & loss accounts?

It’s the most effective method of doing review of financial statements. Its isn’t practical to review all the basic journals and underlying records to check the completeness and accuracy of financial statements.  Analytical review procedure is all about connecting the non-financial business facts the with results the company made during the year. When you inquire about the significant deviation in the key figures in the financial statements, you get a better grip of the underlying business facts and could validate the same from the right source. This enable you to work around that business fact you have learnt and to see if the other possible financial outcomes of the same is captured properly.

For example, there is a big deviation in the fixed assets numbers from the previous year figures. When you have inquired about the same you have learnt that its due to the big expansion plans the company had during the previous year.  So now you will be able to work around this fact. The obvious questions which comes to your mind are, What is the budgeted amount for the year ? is that matching with the financial number? Whether adequate amount was charged to profit and loss and met recognition criteria for property plant and asset ? What about the funding of such project? If it has been borrowed, whether carrying amount in balance sheet matching and whether the interest element has been treated appropriately?

 

Answering such questions will validate the numbers reflected in the financials, and will help us identifying errors, if any. Though its not a fool proof method, it the best method for review of balance sheet and profit and loss account.

Analytical review procedures aim to use quantitative models of ratios, indicators, etc. to identify specific balances or specific results and compare them with the reality of the project being reviewed, and then develop hypotheses to explain deviations and take action to verify them

The concept and types of analytical procedures: The concept of analytical procedures:Analytical procedures are defined as the basic tests used by the auditor by examining and evaluating the relationships between the financial and non-financial statements and comparing these relationships to look for deviations, and then developing hypotheses explaining these deviations and choosing the appropriate procedures to verify these assumptions. .Analytical procedures serve as a guide to the auditor on the integrity of the results and the recorded values ​​and the significant changes in these results that require him to focus on certain items to arrive at the reasons presented by the comparisons.Analytical procedures are the use of statistical and mathematical tools such as financial ratios analysis, trend analysis as well as regression analysis and analysis of indicators. The following is a definition of these tools:· Analysis of financial ratios:        "Analysis of financial ratios is one of the oldest tools of financial analysis and the most important financial ratios are to study the values ​​of the elements shown in the financial statements and accounting reports in order to make meaningful and important indications on the data contained in these lists. The financial ratio can be defined as studying the relationship between two variables, The study of the relationship between one or several elements and another or several other elements "· Trend Analysis:"Trend analysis is one of the most common approaches to analytical procedures and is an analysis of changes in the balance of an item or component during a previous accounting period. The analysis is generally focused on comparing previous year balances with current year balances" · Regression analysis: Is a statistical method in which the average of a random variable or several random variables is predicted based on the values ​​and measurements of other random variables, and always depends on the causal relationship, meaning that the change in the independent variable is a major cause of change in the dependent variable.· Indicators analysis:"The analysis of indicators represents the comparison of the relationships between the accounts included in the financial statements, the comparison of an account with non-financial data or the comparison of relationships among entities operating in the same industry. Another example of the analysis of indicators (sometimes referred to as the general size analysis) Either as percentage to total assets or percentages to total revenue, and revenue analysis is the most appropriate method when the relationship between the accounts is clearly predictable and stable " Types of analytical procedures:     Analytical procedures vary according to the types of data that the auditor compares. Here, the most important aspect of using analytical procedures is to choose the most appropriate type. There are five main types of analytical procedures: 1. Compare the data of the audited entity with the data of the activity in which it operates: This type of analytical procedure helps to provide useful information about the performance of the audited entity by comparing the difference between the nature of the financial information of the entity and the data representing the totals of the activity of other entities that carry out the same activity in which the entity operates. Understand the business of the entity as well as provide an indication of the possibility of financial failure if any.However, there is a drawback in this type of analytical procedure. It is that the activity data that are compared with the data of the entity are general averages in addition to the different accounting methods used by the entities in the same activity, which in turn may affect the accuracy of the results and thus affect their reliability.

2. Comparison of the audited entity's data with corresponding data in the previous period: In this type of analytical procedure, the auditor compares the financial ratios and indicators of the audited entity for the previous years with the financial ratios and indicators of the entity for the current financial year. If a significant increase or decrease is observed in one of these ratios and indicators, he should predict the reasons that may lead to that increase or decrease His experience, and then determines the evidence that he must gather to ascertain those possibilities.The analytical procedures in which the auditor compares the data of the audited entity with those of an earlier period or periods are varied. Examples include:                   Comparison of the balance of the current year with the corresponding amount in the previous year:The auditor balances audit balances that were settled last year in a separate column of the current year's audit balance sheet and balance sheet in another column. Here, the auditor can easily compare current year balances with prior year balances at the beginning of the audit to determine which balances should Giving it greater attention because of significant changes in those stocks.                B - Comparison of the total balance of the balance with the corresponding in the previous year:The auditor can compare the total totals according to a period of time or a period of time. You can compare the monthly totals in the current year and the previous year or compare the total balance at the end of the current period to the end of the previous period. Here the auditor can identify balances that require additional examination .C. Calculations of percentage and financial ratios of relationships compared with previous years:This type is better than the two types mentioned above. This is due to the lack of comparison of totals or details with the corresponding in previous years. The growth or decrease in the activity of the entity is not taken into consideration. By calculating the financial ratio and comparing it with previous years, , So that the auditor can find more accurate results when making comparisons in analytical procedures.

 

3. Comparison of the audit data store with expectations:This type of analytical procedure is often applied when auditing government units. Most entities prepare accounting budgets for accounting periods and compare them with actual data. Differences between actual and estimated data indicate changes that require the auditor to look for their reasons and to convince them. The auditor shall ascertain the extent of the care exercised by the audited entity in the preparation of these estimated budgets, as well as ensure that the entity may modify the data mentioned in the estimated budgets that affect the reality of these budgets, which in turn affects the results of the procedures. Halilah and the extent of reliance on them.4. Audit compared to the data store with the auditor's expectations:In this type of analytical procedure, the auditor performs calculations to arrive at the expected values ​​of certain balances in the financial statements, usually based on some historical trends of those balances, then compares the results of these analytical procedures with the entity's data, Auditor examined the collection of evidence and their own.5. compared with the audit results using non-financial data store data: This type is used to check the balances of some accounts or to estimate certain balances such as the cost of production of oil, which is (the cost of production of the barrel × the quantity of production), and the auditor can rely on this type of analytical procedures only if he is sure the accuracy of non-financial data.

 

 

REVIEW PROVIDES KPI ACHEIVED FINANCIAL NET WOTH VALUATION AND REFLECT STRENGTH OF COMPANY

The concept of analytical review procedures: Analytical procedures are defined in the set of auditing standards No. 56 as: "The process of evaluating financial information by examining the clear and possible relationships between financial statements and each other and between them and non-financial data. With the expectations of the auditor. "As defined by International Standard No. 520, it means:" Analysis of important ratios and indicators, and the examination of fluctuations and relationships that are in conflict with other relevant information or those deviating from the amounts predicted, The relevant non-financial financial information items. "The Executive of the Overseas Affairs of the Records of the Records of the Records of the Records is a re-appropriation of the affairs of the Oberprises. First, it is the process of comparing actual and comparative financial information: 1. Comparing the financial information of an entity with financial information at a previous period or periods (horizontal analysis). 2. Comparing financial information to results or results. To study the relationship between the results of financial information, in order to be consistent with a predictable model based on the experience of the enterprise. 4. Comparing the financial information with the information technology in which the entity operates. 5. Studying the financial information relationship with other non-financial information such as comparing the cost of salaries with the number Staff. Second? Reasons Use Althalilah1.almsaadh audit in understanding the nature of our business and identify risk areas: U 're a Review of Rekereetmnt Of The US Rekereetmnt. That 's That' s That 's Rekereetmnt.2.almsaadh in the estimation of the company's ability to continue: Wei' re a Brissour appreciated. I to you Responz Of The Sakurete.3.almsaadh to identify possible errors or misrepresentations in the financial statements: U 're a Rivernss Of The Statos. Wyeth a Residences of the Complites. What benefit can you create in this area? Analytical procedures "draw attention", which results in the implementation of more detailed procedures, which may lead to the discovery of errors or Almkhalvat.4.tkulail detailed tests: I'm a Responz Of The Orondz. For example, if the result of the implementation of analytical procedures on the balance of a small account, such as the insurance account paid in advance satisfactory, means that conduct detailed tests in this account is not longer Dharora.5.tkhvad the cost of the performance review process: analytical procedures are usually less expensive with detailed tests, and the possibility to carry out tasks without the need for the company subject to the headquarters of the audit process. But not limited to, the purpose and timeliness of the use of analytical procedures. First, analytical procedures when planning the audit process: 1. The objective of using analytical procedures for financial and non-financial information at the planning stage of the audit process is to assist the client's understanding of the audit risk, Or unusual relationships. For example but not limited to -

The concept of analytical review procedures: Analytical procedures are defined in the set of auditing standards No. 56 as: "The process of evaluating financial information by examining the clear and possible relationships between financial statements and each other and between them and non-financial data. With the expectations of the auditor. "As defined by International Standard No. 520, it means:" Analysis of important ratios and indicators, and the examination of fluctuations and relationships that are in conflict with other relevant information or those deviating from the amounts predicted, The relevant non-financial financial information items. "The Executive of the Overseas Affairs of the Records of the Records of the Records of the Records is a re-appropriation of the affairs of the Oberprises. First, it is the process of comparing actual and comparative financial information: 1. Comparing the financial information of an entity with financial information at a previous period or periods (horizontal analysis). 2. Comparing financial information to results or results. To study the relationship between the results of financial information, in order to be consistent with a predictable model based on the experience of the enterprise. 4. Comparing the financial information with the information technology in which the entity operates. 5. Studying the financial information relationship with other non-financial information such as comparing the cost of salaries with the number Staff. Second? Reasons Use Althalilah1.almsaadh audit in understanding the nature of our business and identify risk areas: U 're a Review of Rekereetmnt Of The US Rekereetmnt. That 's That' s That 's Rekereetmnt.2.almsaadh in the estimation of the company's ability to continue: Wei' re a Brissour appreciated. I to you Responz Of The Sakurete.3.almsaadh to identify possible errors or misrepresentations in the financial statements: U 're a Rivernss Of The Statos. Wyeth a Residences of the Complites. What benefit can you create in this area? Analytical procedures "draw attention", which results in the implementation of more detailed procedures, which may lead to the discovery of errors or Almkhalvat.4.tkulail detailed tests: I'm a Responz Of The Orondz. For example, if the result of the implementation of analytical procedures on the balance of a small account, such as the insurance account paid in advance satisfactory, means that conduct detailed tests in this account is not longer Dharora.5.tkhvad the cost of the performance review process: analytical procedures are usually less expensive with detailed tests, and the possibility to carry out tasks without the need for the company subject to the headquarters of the audit process. But not limited to, the purpose and timeliness of the use of analytical procedures. First, analytical procedures when planning the audit process: 1. The objective of using analytical procedures for financial and non-financial information at the planning stage of the audit process is to assist the client's understanding of the audit risk, Or unusual relationships. For example but not limited to -

Analytical review is necessary for reviewing balance sheets and income statement accounts because :*The balance sheet tells investors a lot about a company 's fundamentals :show how much debt the company has, how much it needs to collect from customers, how much cash and equivalents it possesses and what kind of funds the company has generated over time. -Baltimore sheet offers a snapshot of a company 's health -The income statement is a flow measure meaning that cash value on an income statement represents the cumulative amount of the item through the given accounting period