Thursday 9 December 2021

Analytical review methods for Projects

Analytical review refers to the method by which auditors obtain preliminary audit leads by analyzing important ratios or trends of the audited unit, including investigating abnormal changes in those rates or trends and their differences from the expected amount and related information. 


When performing analytical reviews, auditors can use simple comparisons, ratio analysis, and so on.


The key to analytical review is to analyze and compare, in the currency fund audit, auditors should make use of the reasonable standards and experience collected before, the audited unit in the previous year monetary funds management, accounting situation, unit cash, bank deposits and other internal control system establishment, improvement and implementation, unit cash inflow and outflow in recent years, against the analysis of the information and information provided by the audited unit, from which to find abnormal changes, unusual trends or ratios, in order to try to control audit risk.

Improve audit work efficiency and ensure the quality of audit work. analytical review is an effective means to solve the problem of audit underestimation, but the analytical review of monetary funds, auditors should not only rely on the results of analytical testing, but also take other balance test procedures and methods.


Simple comparison method

In the simple comparison method, the more typical is the analysis of cash flow. 


It is well known that it is normal for accounting data to be inconsistent with cash flow under accruals, but the relationship between the two is usually stable when corporate accounting policies remain the same. 


Therefore, any change in the relationship between reported profit and operating cash flow may indicate a slight change in the enterprise accrual estimates. 

"If the company's cash flow is long below net profit, it will mean that assets that have been identified as profits may be virtual assets that cannot be converted into cash flows; comparing cash flow per share of operating activities with earnings per share, such listed companies tend to cheat if the former is negative and the latter is higher.

Ratio analysis

In the ratio analysis method, the more typical is the analysis of gross margin, accounts receivable turnover rate, inventory turnover rate, etc. 


Due to the trend of average gross margin in the same industry. if a listed company's gross margin of main business is too different from the industry average, it may be fraudulent. if its gross margin is significantly higher than the number of industries, it means that its income is false. 


Conversely, income may be concealed. in addition, for example, the sharp decline in accounts receivable and inventory turnover is likely due to the fictitious income and profits of listed companies, without increasing revenue and costs equally, resulting in a sharp increase in receivables and inventories. 


Similarly, a comparison based on the calculation of relevant financial indicators can give auditors a similar enlightenment.

No comments:

Post a Comment