VIETNAMESE STANDARDS ON AUDITING
STANDARD No. 520
ANALYTICAL PROCEDURES
(Issued in pursuance of the Finance Minister’s Decision No. 219/2000/QD-BTC dated 29 December 2000)
GENERAL PROVISIONS
01. This standard aims to prescribe the basic principles and procedures and guide the ways of applying the basic principles and procedures related to the analytical procedures (procedures) in the course of auditing the financial reports.
02. The auditors must carry out the analytical procedures when making the auditing plans and the overall examination of the audit.
The analytical procedures is also carried out at other stages of the auditing process.
03. This standard shall apply to the audit of financial reports and also to the audit of other financial information and relevant services of the auditing companies.
The auditors and auditing companies must abide by the provisions of this standard in the course of performing the audit and providing relevant services.
The audited units (customers) must have necessary knowledge of this standard for coordination with auditors in supplying necessary information and documents related to the audit.
Terms used in this standard shall be understood as follows:
04. Analytical procedures: means the analysis of data, information and important rates, in order through which, to find out trends and fluctuations as well as relations, which contradict other relevant information or see great disparity with the anticipated value.
CONTENTS OF THE STANDARD
Contents and purposes of the analytical procedures
05. The analytical procedures covers the comparison of financial information, such as:
- Comparing corresponding information in the period with those of the previous periods;
- Comparing reality with the unit?s plan (Example: Production plan, sales plan?);
- Comparing reality with the auditor?s estimates (Example: Estimated depreciation expense?);
- Comparing the reality of the unit with those of other units of the same operation scale in the same branch, or with the statistical figures, norms of the same branch (example: Investment rate, combined profit percentage?).
06. The analytical procedures also includes the consideration of relations:
- Between financial information (Example: The relation between combined profit and turnover?);
- Between financial information and non-financial information (Example: The relation between the labor expense and the number of employee?).
07. In the course of effecting the analytical procedures, the auditors may use various methods of from simple comparison to complicated analysis requiring advanced statistical techniques. The analytical procedures also applies to integrated financial report, member units? financial reports or each separate information of the financial reports.
The selection of the analytical procedures, method and extent of application shall depend on the professional assessment of the auditors.
08. The analytical procedures shall be used for the following purposes:
- Assisting the auditors to determine the contents, order and scopes of other auditing procedures;
- The analytical procedures is applied as a basic experiment when the use of this measure is more efficient than the detailed examination in reducing the detected risks relating to the database of the financial report;
- Examining the entire financial report in the final assessment of the audit.
The analytical procedures shall apply when making the auditing reports
09. The auditors shall have to apply the analytical procedures in the course of making auditing reports in order to inquire into the business situation of units and determines areas prone to risks.
The analytical procedures shall assist the auditors to determine the contents, order and scopes of other auditing procedures.
10. The analytical procedures applicable in the course of making auditing reports is based on financial information and non-financial information (Example: The relation between turnover and sale volume or between the quantity of products turned out and the capacity of machinery, equipment?).
The analytical procedures in basic experiments
11. In the course of auditing, with a view to reducing detected risks related to the database of the financial reports, the auditors shall have to implement the analytical procedures or detailed examination or both. In order to determine appropriate auditing procedures for a specific auditing purpose, the auditors shall have to assess the efficiency of each auditing procedure.
12. The auditors shall have to discuss with the directors, chief accountants or representatives of the audited units about the capability to supply information and the reliability of necessary information for the application of the analytical procedures, including the analytical results already achieved by the units. The auditors may use the analytical data of the units if they believe in such data.
13. When applying the analytical procedures, the auditors shall have to consider the following factors:
- The objectives of the analysis and the reliability of the obtained results;
- The units? characters and the extent of information details (Example: The analytical procedures applicable to the financial information of each member unit shall yield more efficiency than the application only to the general information of units?);
- The availability of financial information and non-financial information;
- The reliability of information (Example: The correctness of plans or estimates?);
- The appropriateness of information (Example: The feasibly formulated plans are better than those which contain only targets to be achieved);
- The sources of information (Example: Information from the outside is more reliable than information supplied by units?);
- The comparability of information (Example: Information supplied by units are comparable with information of other units in the same branch?);
- Knowledge gained from audits of the previous periods together with the knowledge of the efficiency of the accounting system and the internal control system, and arising matters, which have led to the adjusted book-entries in the previous period.
The analytical procedures applicable in the stage of overall assessment of the audits
14. During the stage of overall assessment of the audits, the auditors shall have to apply the analytical procedures in order to get the overall conclusion on the compatibility of the major aspects of the financial report with their own knowledge about the business situation of the units. The analytical procedures shall assist auditors to reconfirm the conclusions obtained throughout the process of examining accounts or clauses, items on the financial report. On that basis, the auditors shall be assisted in making general conclusions on the truthfulness and logic of the entire financial report. However, the analytical procedures also points to matters which require the auditors to conduct the supplementary audit.
The reliability of the analytical procedures
15. The analytical procedures shall apply to information which are real and interrelated. The results of analyzing the relations shall provide the auditors with auditing evidences on the adequacy, accuracy and reasonability of the data compiled by the accounting system. The reliability of the analytical procedures depends on the auditors? assessment of risks which cannot be detected by the analytical procedures (Example: The analytical results do not reflect the big fluctuation or disparity but there are in fact important errors?).
16. The reliability on the results of the analytical procedures depends on the following factors:
- The importance of accounts or operations (Example: For goods in stock , which are considered important, not only the analytical procedures but also other procedures for detailed inspection shall be applied before making conclusions. On the contrary, for collectable debts which are considered unimportant, only the analytical results may be used as basis for making conclusions...);
- Other auditing procedures for the same auditing target (Example: The procedure for inspection of the money-collecting operation before the date of book closure for collectable amounts shall confirm or deny the results of the process of analyzing debts to be collected according to time-limits,?);
- The anticipated accuracy of the analytical procedures (Example: Auditors often prefer the comparison and analysis of the combined profit percentages between the current year and the previous year to the comparison of irregular expenses between the previous year and the current year?);
- The evaluation of potential risks and controllable risks (Example: If the internal control of the sale section is weak, it is better to rely on the detailed inspection than on the analytical procedures?).
17. The auditors must re-check the control procedures in order to create information for use in the analytical procedures. Where the control procedures are effective, the auditors shall put more trust on the reliability of the information and the analytical results are also more reliable. The auditors must examine simultaneously the accounting control procedures and the non-financial information control procedures (Example: Where the units control the making of sale invoices together with the quantity of sold goods, the auditors shall check simultaneously the procedures for control of sale invoices and control of the quantity of sold goods).
Investigation of unusual factors
18. Where the analytical procedures detects important disparities or irrational relationships among corresponding information, or big disparities with the estimated data, the auditors shall have to carry out the investigation procedures in order to adequately collect appropriate auditing evidences.
19. The investigation of import disparities or irrational relationships often start by requesting the directors (or heads) of the audited units to supply information and proceed with the following procedures:
- Reexamining the answers of the directors (or the heads) by comparing them with other auditing evidences already obtained in the course of auditing;
- Considering and implementing other procedures if the directors (or the heads) are still unable to give the explanation or have given unsatisfactory explanation./.
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