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Hello Mam, can you explain how exactly does the following factor (from kaplan kit answer to Bronze co) determine the suitability of Analytical Procedures as Substantive procedures
”Amount of difference between expected amounts and recorded amounts that is acceptable. This will depend on the level of materiality and the desired level of assurance required by the auditor.”
I do understand that acceptability for the difference ( in whatever transaction class etc) we get after performing AP depends on materiality and auditor’s professional judgement, but I can’t relate to how does that affect out decision to use AP or not…….
Say the auditor is thinking of carrying out a test in total on an expense item – payroll or depreciation – whatever “model” he plans to use to create an expectation, he has to expect that it will come within a specified $/% of the recorded amount in order to conclude that the recorded amount is not materially misstated. For example, he will accept +/- 5% on the recorded amount.
A substantive analytical procedure which could only predict to within 50% say of the recorded amount wouldn’t be good enough – so the auditor wouldn’t plan to use such a procedure.
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For those expensed as research, agree the costs incurred to invoices and
supporting documentation and to inclusion in profit or loss.
– For those capitalised as development, agree costs incurred to invoices and
confirm technically feasible by discussion with development managers or
review of feasibility reports.
– Review market research reports to confirm Gooseberry Co has the ability to
sell the product once complete and probable future economic benefits will
arise.
Plz tell to which assertions these points belong toIf you agree a $ amount that is accuracy – may also be valuation where $ is cost.
That development costs meet asset recognition criteria you could say is existence – i.e. you are look at existence of an asset as opposed to the occurrence of an expense.
Please do look at the lists in Chapter 16 for transactions and balances and see if you cannot work some out for yourself.
ALSO please do not add your questions to unrelated posts – start a new thread with a suitable title.
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