Question Of The Week

• Explanation

The auditor's responsibilities for the detection of material misstatements due to fraud are met through the performance of various steps during different phases of the audit. The first step is for the auditor to evaluate the results of analytical procedures conducted as part of the planning phase.

These procedures are designed to identify inconsistencies or abnormal fluctuations, which might be an indication of fraud. If appropriate, auditors should adjust the audit program to include additional procedures that address these risks.

(Choice A) Results of analytical procedures are not used to determine planning materiality or acceptable error. Auditors generally use a percentage of a benchmark (eg, assets, revenues) to determine materiality. Then, materiality is used to calculate the acceptable error.

(Choice B) The results of analytical procedures alone are not enough to determine which controls should be tested. Analytical procedures are used in combination with an auditor's understanding of internal controls to determine which controls to test.

(Choice D) Scanning the ending account balances will identify significant amounts; it is not necessary to perform analytical procedures to identify them.

Things to remember:
During planning, if analytical procedures yield unusual or unexpected relationships, auditors should evaluate the relationships to determine whether they indicate a possible risk of material misstatement due to fraud. If a risk is identified, the audit program should be adjusted accordingly.

Lecture References :

• AUD 5.04 : Obtaining Sufficient Appropriate Audit Evidence: Analytical Procedures