The effective steps for risk assessment to identify the risks Essay

The effective steps for risk assessment to identify the risks regarding the misstated data in the financial records - Essay Example The analytical procedures can be described as ‘evaluating the financial records by analyzing the credible relationship between the financial records and non-financial records’. It can be also included that ‘such analysis is mandatory to identify the difference or inconsistency of relevant data or the difference between provided data and the estimated values’ (ISA/HKSA 520(4)). The basic principle to apply the analytical procedures is the expected existence of the credible relationship may occur and the analytical procedures may carry on in such circumstances in the non-appearance of the opposite factors. Defining the purposes Auditors use analytical procedures in the entire audit course to achieve the three main purposes of audit: 1) Preliminary analytical review These are the introductory analytical reviews, which assist the auditors to get an idea about the business and industry. They can start with reviewing the previous financial records, performance of industry and the competitors. This will lead them to decide the nature of audit, the time period required and the level of analytical procedures. Basically, preliminary analytical reviews help to design the strategies and plans to conduct the audit. 2) Substantive analytical procedures Auditors can use the analytical procedures substantively. If the auditors feel that their analytical procedure can bring more accurate results rather than using different tests, so they usually reduce the level of tests to identify the misstated facts of the financial records. These procedures will be known as substantive analytical procedures. 3) Final analytical reviews Financial records are analyzed thoroughly by the auditors through analytical procedures, which lead the independent individuals towards th e outcomes whether records are accurate or in compliance with auditors’ understanding. So analytical procedures are applied finally to analyze the facts but these procedures are not executed to get hold of the extra substantive analysis. In such case, if auditors find any inconsistency in the records, they must repeat the risk assessment procedure and if they feel the need of extra analytical procedures, they can go for it. Substantive analytical procedures usage Acquiring the evidence of audit that must be reliable and appropriate is one of the basic points of analytical procedures. While applying the procedures of substantive analytics, auditors need to acquire the guarantee with the assistance of other auditing tools and controls. These tools and controls help the auditors to evaluate the results of different sections after applying analytical procedures. Such analytical procedures have ability to cover a wider range of transactions that is why procedures of substantive an alytics are normally used to analyze the financial records. As it is briefly told that the auditors apply substantive analytical procedures on the expected existence of the credible relationship between financial data and they may carry on this analytical procedure in case of non-appearance of contrary factors. The existence of relationship between the data provides the base of audit evidence that leads the auditors to