- July 24, 2021 at 5:25 am #629267Jiya024Member
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“One of the factors in assessing the suitability of analytical procedures as substantive tests:
Precision of expectation. The auditor should consider whether a sufficiently precise expectation can be developed to be able to identify a material misstatement. If not, there is limited use in using analytical procedures.”
Professor can you explain this in a bit detail, preferably with an example…
Sorry for bothering you so muchJuly 24, 2021 at 8:59 am #629295Kim SmithKeymaster
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See my illustration of a “proof in total” (as an example of an analytical procedure) here https://opentuition.com/topic/recalculation-v-s-proof-in-total
The expectation of c. $1.6m should be reasonably precise – or the auditor could calculate a range based on hourly rates of $8 or $10.
Or if a company sold just a small range of product with a mark-up of, say, 33%, revenue could be estimated as cost of sales x 133/100 – of course the cost of sales amount would have to be audited in the first place to show that this was materially correct.
But if the company sells a wide range of products with widely differing margins/discounts offered to customers, a proof in total is unlikely to predict/estimate recorded revenue with a sufficient degree of accuracy that it could be of any use.
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