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 Standard on Internal Audit (SIA) 18, Related Parties
 Standard on Internal Audit (SIA) 17, Consideration of Laws and Regulations in an Internal Audit
 Standard on Internal Audit (SIA) 16, Using the Work of an Expert
 Standard on Internal Audit (SIA) 14, Internal Audit in an Information Technology Environment
 Standard on Internal Audit (SIA) 13, Enterprise Risk Management
 Standard on Internal Audit (SIA) 12, Internal Control Evaluation
 Standard on Internal Audit (SIA) 11, Consideration of Fraud in an Internal Audit
  Standard on Internal Audit (SIA) 9, Communication with Management
  Standard on Internal Audit (SIA) 8, Terms of Internal Audit Engagement
 Standard on Internal Audit (SIA) 7, Quality Assurance in Internal Audit
 Standard on Internal Audit (SIA) 6, Analytical Procedures
 Standard on Internal Audit (SIA) 5, Sampling
 Standard on Internal Audit (SIA) 4, Reporting
 
 

Standard on Internal Audit (SIA) 6, Analytical Procedures
November, 28th 2018
              STANDARD ON INTERNAL AUDIT (SIA) 6
                  ANALYTICAL PROCEDURES*

Contents
                                                                            Paragraph(s)

Introduction ............................................................................... 1-3
Nature and Purpose of Analytical Procedures........................... 4-9
Analytical Procedures as Risk Assessment
Procedures and in Planning the Internal Audit ...................... 10-11
Analytical Procedures as Substantive Procedures ................ 12-14
Analytical Procedures in the Overall Review at the
End of the Internal Audit .............................................................15
Extent of Reliance on Analytical Procedures......................... 16-18
Investigating Unusual Items or Trends ................................. 19-20
Effective Date .............................................................................21

     The following is the text of the Standard on Internal Audit
     (SIA) 6, Analytical Procedures , issued by the Council of the
     Institute of Chartered Accountants of India. These Standards
     should be read in conjunction with the Preface to the
     Standards on Internal Audit, issued by the Institute.
     In terms of the decision of the Council of the Institute of
     Chartered Accountants of India taken at its 260 th meeting held
     in June 2006, the following Standard on Internal Audit shall be
     recommendatory in nature in the initial period. The Standards
     shall become mandatory from such date as notified by the
     Council.



    Published in the October 2008 issue of The Chartered Accountant.
*
Standard on Internal Audit (SIA) 6


Introduction
1.   The purpose of this Standard on Internal Audit (SIA) is to establish
     standards on the application of analytical procedures during an
     internal audit.
2.   The internal auditor should apply analytical procedures as the
     risk assessment procedures at the planning and overall review
     stages of the internal audit. Risk assessment procedures refer to the
     internal audit procedures performed to obtain an understanding of the
     entity and its environment, including the entity's internal control, to
     identify and assess the risks of material misstatement, whether due to
     fraud or error, in the information subjected to internal audit. Analytical
     procedures may also be applied at other stages.
3.   "Analytical procedures" means the analysis of significant ratios and
     trends, including the resulting investigation of fluctuations and
     relationships in both financial and non-financial data that are
     inconsistent with other relevant information or which deviate
     significantly from predicted amounts. Analytical procedures provide the
     internal auditor with an efficient and effective means of making an
     assessment of information collected in an audit. The assessment results
     from comparing such information with expectations identified or
     developed by the internal auditor.
Nature and Purpose of Analytical Procedures
4.   Analytical procedures include the consideration of comparisons of the
     entity's financial and non-financial information with, for example:
            Comparable information for prior periods.
            Anticipated results of the entity, such as budgets or forecasts or
            expectations of the internal auditor.
            Predictive estimates prepared by the internal auditor, such as
            an estimation of depreciation charge for the year.
            Similar industry information, such as a comparison of the
            entity's ratio of sales to trade debtors with industry averages, or
            with other entities of comparable size in the same industry.
                                     2
                                                Analytical Procedures






5.   Analytical procedures also include consideration of relationships:
            Among elements of financial information that would be
            expected to conform to a predictable pattern based on the
            entity's experience, such as gross margin percentages.
            Between financial information and relevant non-financial
            information, such as payroll costs to number of employees or
            total production costs to quantity produced.
6.   Various methods may be used in performing the above procedures.
     These range from simple comparisons to complex analyses using
     advanced statistical techniques. Analytical procedures may be applied
     to consolidated financial statements, financial statements of
     components (such as subsidiaries, divisions or segments) and
     individual elements of financial information and relevant non-financial
     information. The internal auditor's choice of procedures, methods and
     level of application is a matter of professional judgement. Specific
     analytical procedures include, but are not limited to ratio, trend, and
     regression analysis, reasonableness tests, period-to-period
     comparisons, comparisons with budgets, forecasts, and external
     economic information.
7.   In determining the extent to which the analytical procedures
     should be used, the internal auditor should consider the
     following factors, including:
            The significance of the area being examined.
            The adequacy of the system of internal control.
            The availability and reliability of financial and non-financial
            information.
            The precision with which the results of analytical
            procedures can be predicted.
            The availability and comparability of information regarding
            the industry in which the organization operates.
            The extent to which other auditing procedures provide
            support for audit results.
     After evaluating the aforementioned factors, the internal auditor
     should consider and use additional auditing procedures, as
     necessary, to achieve the audit objective.


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Standard on Internal Audit (SIA) 6

8.    Analytical procedures are used for the following purposes:
             to assist the internal auditor as risk assessment procedures to
             obtain initial understanding of the entity and its environment
             and thereafter in planning the nature, timing and extent of other
             internal audit procedures;
             as substantive procedures when their use can be more
             effective or efficient than tests of details in reducing detection
             risk for specific financial statement assertions;
             as an overall review of the systems and processes in the final
             review stage of the internal audit; and
             to evaluate the efficiency of various business/ management
             systems.
9.    Analytical procedures may identify, among other things, differences
      that are not expected or absence of differences when they are
      expected, which may have arisen on account of factors such as errors,
      frauds, unusual or non recurring transaction or events, etc.
Analytical Procedures as Risk Assessment Procedures
and in Planning the Internal Audit
10.   The internal auditor should apply analytical procedures as risk
      assessment procedures to obtain an understanding of the
      business, the entity and its environment and in identifying areas
      of potential risk. Application of analytical procedures may indicate
      aspects of the business of which the internal auditor was unaware and
      will assist in determining the nature, timing and extent of other internal
      audit procedures.
11.   Analytical procedures in planning the internal audit use both financial
      and non-financial information, for example, in retail business, the
      relationship between sales and square footage of selling space or
      volume of goods sold.

Analytical Procedures as Substantive Procedures
12.   The internal auditor's reliance on substantive procedures to reduce
      detection risk relating to specific financial statement assertions and
      assertions relating to process, systems and controls may be derived
                                      4
                                                   Analytical Procedures

      from tests of details, from analytical procedures, or from a combination
      of both. The decision about which procedures to use to achieve a
      particular internal audit objective is based on the internal auditor's
      judgement about the expected effectiveness and efficiency of the
      available procedures in reducing detection risk for specific financial
      statement assertions or assertions relating to process, systems and
      controls.
13.   The internal auditor will ordinarily inquire of management as to the
      availability and reliability of information needed to apply analytical
      procedures and the results of any such procedures performed by the
      entity. It may be efficient to use analytical data prepared by the entity,
      provided the internal auditor is satisfied that such data is properly
      prepared.
14.   When intending to perform analytical procedures as substantive
      procedures, the internal auditor will need to consider a number of
      factors such as the:
             Objectives of the analytical procedures and the extent to which
             their results can be relied upon.
             Nature of the business, entity and the degree to which
             information can be disaggregated.
             Availability of information, both financial, such as budgets or
             forecasts, and non-financial, such as the number of units
             produced or sold.
             Reliability of the information available, for example, whether
             budgets is prepared with sufficient professional care.
             Relevance of the information available, for example, whether
             budgets have been established as results to be expected rather
             than as goals to be achieved.
             Source of the information available, for example, sources
             independent of the entity are ordinarily more reliable than
             internal sources.
             Comparability of the information available, for example, broad
             industry data may need to be supplemented to be comparable
             to that of an entity that produces and sells specialised products.


                                      5
Standard on Internal Audit (SIA) 6

            Knowledge gained during previous internal audits, together with
            the internal auditor's understanding of the effectiveness of the
            accounting and internal control systems and the types of
            problems that in prior periods have given rise to accounting
            adjustments.
            Controls over the preparation of the information, for example,
            controls over the preparation, review and maintenance of MIS
            reports, budgets, etc.

Analytical Procedures in the Overall Review at the End of
the Internal Audit
15.   The internal auditor should apply analytical procedures at or near
      the end of the internal audit when forming an overall conclusion
      as to whether the systems, processes and controls as a whole
      are robust, operating effectively and are consistent with the
      internal auditor's knowledge of the business. The conclusions
      drawn from the results of such procedures are intended to corroborate
      conclusions formed during the internal audit of individual components
      or elements of the financial statements, e.g., purchases, and assist in
      arriving at the overall conclusion. However, in some cases, as a result
      of application of analytical procedures, the internal auditor may
      identify areas where further procedures need to be applied before the
      internal auditor can form an overall conclusion about the systems,
      processes and associated controls.






Extent of Reliance on Analytical Procedures
16.   The application of analytical procedures is based on the expectation
      that relationships among data exist and continue in the absence of
      known conditions to the contrary. The presence of these relationships
      provides the internal auditor evidence as to the completeness,
      efficiency and effectiveness of systems, processes and controls.
      However, reliance on the results of analytical procedures will depend
      on the internal auditor's assessment of the risk that the analytical
      procedures may identify relationships as expected when, in fact, a
      material misstatement exists.


                                     6
                                                  Analytical Procedures

17.   The extent of reliance that the internal auditor places on the results of
      analytical procedures depends on the following factors:
             materiality of the items involved, for example, when inventory
             balances are material, the internal auditor does not rely only on
             analytical procedures in forming conclusions. However, the
             internal auditor may rely solely on analytical procedures for
             certain income and expense items when they are not
             individually material;
             other internal audit procedures directed toward the same
             internal audit objectives, for example, other procedures
             performed by the internal auditor while reviewing the credit
             management process, in the collectibility of accounts
             receivable, such as the review of subsequent cash receipts,
             might confirm or dispel questions raised from the application of
             analytical procedures to an ageing schedule of customers'
             accounts;
             accuracy with which the expected results of analytical
             procedures can be predicted. For example, the internal auditor
             will ordinarily expect greater consistency in comparing gross
             profit margins from one period to another than in comparing
             discretionary expenses, such as research or advertising; and
             assessments of inherent and control risks, for example, if
             internal control over sales order processing is weak and,
             therefore, control risk is high, more reliance on tests of details
             of transactions and balances than on analytical procedures in
             drawing conclusions on receivables may be required.
18.   The internal auditor will need to consider testing the controls, if any,
      over the preparation of information used in applying analytical
      procedures. When such controls are effective, the internal auditor will
      have greater confidence in the reliability of the information and,
      therefore, in the results of analytical procedures. The controls over
      non-financial information can often be tested in conjunction with tests
      of accounting-related controls. For example, an entity in establishing
      controls over the processing of sales invoices may include controls
      over the recording of unit sales. In these circumstances, the internal
      auditor could tests the controls over the recording of unit sales in
                                      7
Standard on Internal Audit (SIA) 6

      conjunction with tests of the controls over the processing of sales
      invoices.

Investigating Unusual Items or Trends
19.   When analytical procedures identify significant fluctuations or
      relationships that are inconsistent with other relevant information
      or that deviate from predicted amounts, the internal auditor
      should investigate and obtain adequate explanations and
      appropriate corroborative evidence. The examination and
      evaluation should include inquiries of management and the
      application of other auditing procedures until the internal auditor
      is satisfied that the results or relationships are sufficiently
      explained. Unexplained results or relationships may be indicative
      of a significant condition such as a potential error, irregularity, or
      illegal act. Results or relationships that are not sufficiently
      explained should be communicated to the appropriate levels of
      management. The internal auditor may recommend appropriate
      courses of action, depending on the circumstances.
20.   The investigation of unusual fluctuations and relationships ordinarily
      begins with inquiries of management, followed by:
            corroboration of management's responses, for example, by
            comparing them with the internal auditor's knowledge of the
            business and other evidence obtained during the course of the
            internal audit; and
            consideration of the need to apply other internal audit
            procedures based on the results of such inquiries, if
            management is unable to provide an explanation or if the
            explanation is not considered adequate.

Effective Date
21.   This Standard on Internal Audit is applicable to all internal audits
      commencing on or after ______. Earlier application of the SIA is
      encouraged.




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