What are the key ratios used in analytical procedure of auditing?

What are the key ratios used in analytical procedure of auditing?

Key ratios used in analytical procedures

  • Profitability/Return. Gross Margin. Net Margin. ROCE.
  • Liquidity/Efficiency. Receivables/Payables/Inventory Days. Current Ratio. Quick Ratio.
  • Gearing. Financial Gearing. Operational Gearing.

Is ratio analysis an analytical procedure?

4 Type of analytical procedures Trend analysis – the analysis of changes in an account over time. Ratio analysis – the comparison, across time or to a benchmark, of relationships between financial statement accounts and between an account and non-financial data.

What is ratio analysis in auditing?

Ratio analysis is the comparison of line items in the financial statements of a business. Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability. Trend lines can also be used to estimate the direction of future ratio performance.

What are the five major types of analytical procedures in auditing?

Typically, five types of audit procedures normally use by auditors to obtain audit evidence. Those five audit procedures include Analytical review, inquiry, observation, inspection, and recalculation.

What are some examples of analytical procedures?

Examples of analytical procedures are as follows:

  • Compare the days sales outstanding metric to the amount for prior years.
  • Review the current ratio over several reporting periods.
  • Compare the ending balances in the compensation expense account for several years.
  • Examine a trend line of bad debt expenses.

What are analytical review procedures?

The accounting profession defines analytical review procedures as, ”evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.

What is an analytical process?

Analytical processing involves the interaction between analysts and collections of aggregated data that may have been reformulated into alternate representational forms as a means for improved analytical performance.

What are the 5 types of ratios?

Ratio analysis consists of calculating financial performance using five basic types of ratios: profitability, liquidity, activity, debt, and market.

What are the 7 audit procedures?

Audit procedures to obtain audit evidence can include inspection, observation, confirmation, recalculation, reperformance, and analytical procedures, often in some combination, in addition to inquiry.

What are the four different types of analytical methods?

There are four types of analytics, Descriptive, Diagnostic, Predictive, and Prescriptive.

What is meant by analytical procedures?

Analytical procedures are a type of evidence used during an audit. Analytical procedures involve comparisons of different sets of financial and operational information, to see if historical relationships are continuing forward into the period under review.

When to use ratios in an analytical procedure?

Ratio Analysis Plays a key Roll to determine the business circumstance, here are few Ratios are given below. In the examination, you will be asked to calculate and interpret the ratios used in analytical procedures at the audit planning stage and when collecting audit evidence.

How are ratios used in audit and assurance?

In the Paper Audit and Assurance exam, you may be asked to compute and interpret the key ratios used in analytical procedures at both the audit planning stage and when collecting audit evidence. Ratios and comparisons can be used to identify where the accounts can be wrong, and where additional auditing effort needs to be spent.

How are analytical procedures used in an audit?

Auditors perform analytical procedures in various stages of the audit for three main purposes: To use as risk assessment procedures to obtain an understanding of the client and the risks that the client exposes to To assess the risks of material misstatements that could occur on the financial statements at the planning stage of the audit

How does an auditor use trend and ratio analysis?

Auditors usually use trend and ratio analysis by comparing the amount or balances they obtain from client’s accounts or records to their expectations that were built by using the knowledge obtained in previous years, industry trends, and current economic development, etc.