Recalculation

Definition: Rechecking a sample of the computations

Includes:

Rechecking arithmetical accuracy $($e$.$g$.,$ footing and cross$-$footing$)$

$,$ Checking computation of depreciation expense $($e$.$g$.,$ tests of extension$)$

Recalculating the allowance for doubtful accounts based on a formula $($e$.$g$.,$ recalculation of an estimate$)$

Which determinants of persuasiveness$/$reliability are in operation?

Reperformance

Definition: Rechecking transfers of information made by the client during the period under audit.

Includes:

Transfers of information $($e$.$g$.,$ from sales journal to general ledger$)$

Comparing price used on an invoice to the master price list

How does reperformance differ from an analytical procedure?

If an auditor calculates the ratio of sales commissions expense to sales as a test of sales commissions, is this reperformance

or an analytical procedure?

Analytical Procedures

Definition: Evaluations of financial information made by a study of plausible relationships among financial and nonfinancial

data involving comparisons of recorded amounts to expectations developed by the auditor. Ratio analysis and flux analysis are

common types of analytical procedures.

Five types of analytical procedures:

a$.$ Compare client and industry or competitor data.

b$.$ Compare client data with prior$-$period data.

c$.$ Compare client data with client$-$determined expected results.

d$.$ Compare client data with auditor$-$determined expected results.

e$.$ Compare client data with expected results, using nonfinancial data.

What are some examples of ratio analysis that might be useful to auditors when they are performing analytical procedures? Is

it sufficient to calculate ratios for one period, or should the auditors compare ratios for multiple periods.

Why would looking at fluctuations in account balances from period to period be useful for auditors?

Why would comparing client data against industry or competitor data be useful for auditors?

Why would comparing client data against budgeted or forecasted results be useful for auditors?