Cia Part I - Su 6.7 Analytical Review Techniques

Front 1

what are analytical procedures useful for?

Back 1

for identifying POTENTIAL errors and fraud that may require subsequent engagement procedures

Front 2

what do analytical procedurres involve ?

Back 2

comparing information with expectations

Front 3

What may analytical procedures provide with regard to completeness assertion?

Back 3

the best available information for the completeness assertion

Front 4

what do analytical procedures include?

Back 4

"1) comparing current period information with prior periods, budgets or forecasts 2) relationships between financial and nonfinancial information 3) comparing information with expectations based on similar information for other organizational units and industry"

Front 5

What should an IA do when he identifies unexpected results during an analytical audit procedure?

Back 5

obtain more detailed information about the unexpected results before inquiring client's management

Front 6

what are the ratios measuring liquidity?

Back 6

"1) current ratio 2) accounts receivable turnover ratio 3) inventory turnover ratio"

Front 7

how is the current ratio calculated?

Back 7

current assets / current liabilities

Front 8

When does the current ratio indicate a high liquidity?

Back 8

when current assets exceed the current liabilities

Front 9

What may an abnormally high current ratio indicate?

Back 9

idle or underutilized resources in the company

Front 10

how is the accounts receivable turnover ratio calculated?

Back 10

net credit sales / average balance in receivables

Front 11

what does the accounts receivable turnover ratio express?

Back 11

number of times the average balance in receivables is converted to cash

Front 12

how is the inventory turnover ratio calculated?

Back 12

cost of goods sold / average balance in inventory

Front 13

what does the inventory turnover ratio measure?

Back 13

number of times the average inventory balance is converted to cash

Front 14

What are the ratios measuring profitability?

Back 14

1) gross profit rate

2) operating profit rate

3) net profit rate

Front 15

how is the gross profit rate calculated?

Back 15

(revenue - COGS) / revenue

or

gross margin / revenue

Front 16

what does the gross profit margin measure?

Back 16

the percentage that is remained from each dollar of revenue as profit

Front 17

how is the operating profit rate calculated?

Back 17

(revenue - COGS - operating costs) / revenue

or

(gross margin - operating costs) / revenue

Front 18

how is the net profit rate calculated?

Back 18

net profit / net sales

where

net profit = revenue - sales returns - COGS - operating expenses - income tax

net sales = revenue - sales returns

Front 19

what are the three methods of ratio comparison?

Back 19

"1. trend analysis 2. period-to period analysis 3. industry analysis

Front 20

what does the trend analysis do?

Back 20

tracks the changes in a ratio over time

Front 21

what does period-to-period analysis do?

Back 21

compares performance for similar time perios e.g. 3.Q 2014 vs. 3. Q. 2013

Front 22

what does industry analysis do?

Back 22

compares the organization's ratios with those of competitors or the entire industry

Front 23

what are other analytical procedures?

Back 23

- regression analysis
- variance analysis

Front 24

what does regression analysis do?

Back 24

determines the degree of relationship between to variables (e.g. sales and cost of goods sold)

Front 25

what does variance analysis do?

Back 25

studies the difference between actual and budgeted amount

Front 26

What is inventory turnover analysis useful for?

Back 26

- Identifying potential problems in purchasing activities

- Identifying products for which management has not been attuned to changes in market demand

- Identifying obsolete inventory.