It says, "Analytical procedures generally provide the primary form of review evidence
obtained by the accountant.
The accountant uses an understanding of the industry, client knowledge, and general knowledge
about business, accounting, and economy, and the economy, to develop expectations as to
information that might appear.
Expectations may in the form of an amount, such as ranges of amounts, it could be in
the form of ratios of relationships," like receivables to sales, right, normally let's
say, my receivables to sales is a certain percent, then I will look at that to see if
it's year to year to year, it's consistent, it looks reasonable.
"The accountant will compare the client's data expectations to determine if variances
are reasonable.
Any difference should be investigated further.
Some analytical procedures that the accountant is required to perform include: comparing
current period," so current year and prior year, "CY," current year.
"PY," prior year.
"Considering plausible relationships between financial and non-financial," I mentioned
that a number of employees and payroll data.
"Comparing amounts reported by the financial statements or ratio amounts, and derive those
amounts that you expected, making comparisons using disaggregated revenue data," that would
be like revenue month-to-month, or by product line.
"When fluctuations or differences are expected, amounts exceed what the accountant considers
acceptable, the accountant will investigate the differences" by then making what?
Inquiries.
So this is what leads us into the inquiries, so a lot of times you'll do your analytical
procedures, and we call inquiries and...
And then we'll go back and go, "hey!
I need some clarification here, these things don't look right."
What are the inquiries?
Certain inquiries, "the preparation and fair presentation of the statements, any unusual
or complex transactions, significant transactions, especially those occurring near the end of
the year."
What about that?
At the end of the year, maybe they pay off a loan, so their debt goes down.
But then their cash goes bye-bye, and then they borrow the money back three days later,
after year-end, just so their debt is lower, so their ratios get affected.
You've gotta look at that stuff, you've gotta ask them questions, so you're making inquiries
of management about all of these things.
"Uncorrected errors in the prior year statements.
Results of analytical procedures requiring further clarification.
Subsequent event," that's an event that occurs after the balance sheet date but before you
issue the report.
"Any suspicion of fraud.
Noncompliance with laws and regulations.
Significant journal entries," or AJEs, adjusting journal entries, reclassifying journal entries,
things like that.
"Applicable communications from regulators, related party transactions, litigations, claims,
and assessments," things that we ask about in an attorney's letter, called the letter
about an inquiry, which we don't get.
"The reasonableness of management's estimates, actions taken at board meetings, other matters,"
all of these are things that we are doing with inquiries, and again, a lot of the inquiries
come from your analytical procedures.
"Reading the statements," make sure you read them, we had to do that in a compilation,
we do that in a review, we did not do that in an, preparation of financial statements,
you didn't have to.
"Work of other accountants."
What does that mean?
Basically, there may be a subsidiary that someone else was looking that, so we're gonna
look at that work as well, "relationship with the financial statements to the underlying
accounting records, the account is required to obtain evidence that the statements were
derived from the accounting records, this may be accomplished by reconciling statements
to the accounting records, a consolidated schedule, or other data."
"Review evidence," so now we're gonna obtain the evidence, review it, "the accountant may
become aware that information provided by the client is incorrect, incomplete, or otherwise
unsatisfactory, we should then request that they consider the implications and consider
if management's response indicates that the statements may be materially misstated.
Upon concluding that the statements may be materially misstated, the accountant will
perform whatever procedures we need in order to decide if we want to stay, maybe do additional
analytical procedures