A CPA is performing the audit examination of a new audit cli

A CPA is performing the audit examination of a new audit client. Because the CPA has not audited this client in previous years, it is interested in identifying areas that are likely to contain material misstatements in the financial statements during the current year audit. In preparing for this audit examination, assume the CPA has consulted the appropriate SASs and identified various characteristics that can result in misstatements in the financial statements. In addition, the CPA has considered applying analytical procedures in the planning stages of the audit examination REQUIRED: (1)What factors should the CPA consider in identifying the overall potential for misstatements in the client\'s financial statements? Group these factors by category and identify how they would affect the potential for misstatements Define analytical procedures. What is the purpose of performing analytical procedures in the planning stages of the audit? What are five methods that can be used by the auditor to determine the expected value for use in performing analytical procedures? For each of these methods, give one possible example of how the CPA could calculate the expected balances for the client\'s accounts receivable (2) (3) (4)

Solution

1) industry development (a potential related business risk might. That the company does not have the personnel or expertise to deal with change in the industry.)

New products and services ( a potential related to business risk might be . That the new products and services will not be successful.)

Use of information technology (a potential related business risk might be. That the system and processes are incomplete

New accounting requirements ( a potential related business risk might be. Incomplete or improve implement of new new accounting requirements.

2) analytical procedures consists of \" evaluation of financial information through analysis of plausible relationship among both of financial and non financial data. They also encompass such investigation as is necessary of identity fluctuations or relationship that are inconsistent with other relevant information or that differ from expected value by a significant amount.

3) preliminary analytical review are performed to obtain an understanding of the business and it\'s environment , to the help assess the risk of material misstatements in order to determine nature timing and extend of audit procedures.

Substantive analytical procedures when use the auditor consider that the use of analytical procedures can be more effective or efficient than tests of details in reducing the Risk of material misstatements at the assertion low level.

Final analytical procedures review are performed as an overall review of the financial statements at the end of the audit to assess whether they are consistent with the auditor understanding of the entity. Final analytical procedures are not conducted to obtain additional substantive assurance.

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