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Auditing: where are analytical procedures most efficient

REQUIRED:

1.Identify areas where analytical procedures are most efficient in auditing payables, inventory, and expense accounts.

2.Discuss the role of important changes in technology and supply chain management and how these changes affect the audit of acquisitions and inventory.

Solution Preview

Analytical procedures can be very effective in either disclosing issues or pointing to areas that need more testing. Common types used are
1. Reasonableness and other predictive tests
2. Scanning or 'eyeballing' amounts
3. Ratio analysis
4. Review of documents
5. Roll forward procedures

With regard to auditing payables, tests of reasonableness, scanning and ratio analysis can all be used very effectively. Substantive testing is still required, but the amount of testing can be determined after analytical procedures. Scanning can be used effectively on other payable accounts such as income taxes payable, pension plan liability, and accrued expenses.

For inventory, ratio analysis may be the most predictive of problems: days sales in inventory gross ...

Solution Summary

The solution lists five types of analytical procedures which can be very effective in either disclosing issues or pointing to areas that need more testing. The following paragraphs address specifics of using these procedures. For the second question, there are five short paragraphs in response.

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