All About Analytical procedures
Analytical Procedures mean the analysis and comparison of financial statements with an intention to identify the potential risk areas of the business.
Financial statements show the income, expenses, assets, liabilities and share capital. When we calculate different ratios by creating relationship of each item in the financial statement with another item, an in-depth analysis can be performed. Then, the company’s data can be compared with another similar company from the same industry.
As a financial auditor, one can use the company related news in the media, its budget, the different reports generated by various authorities, interim financial statements, prior period statements, board minutes and discussion &/or correspondence with the client at the year-end. However, this list is endless and solely depends on the cognitive and organizational skills of the auditor involved.
Following inherent risks could be identified with Analytical procedures.
|1||Stocks and bonds are unauthorized and are recorded incorrectly with respect to Account head, amount involved, and the period.||Amounts of security type and changes from period to period.Scheduled maturities. Level of purchase and sales activity.|
|2||Accrued and unearned income on stocks and bonds is recorded incorrectly with respect to Account head, amount involved, and the period.||Accrued investment income as stocks and bonds as a percentage of stocks and bonds.Accrued investment expense to accrued investment income.Accrued investment income as a percentage of investment income.|
|3||Stocks and bonds are improperly valued and loss in value is not promptly identified and provided for.||Relationship of cost and market values by category.Scheduled bond maturities.|
|4||Mortgage loans are unauthorized and are recorded incorrectly as to the account, amount and period.||Composition of portfolio regarding loan size (e.g., 50% > Rs.1 million).Scheduled maturities.|
|5||Accrued and unearned income on mortgage loans is recorded incorrectly as to account, amount and period.||Accrued income as a percent of total portfolio.Accrued income on mortgage loans as a percent of total investment income.|
|6||Real estate holdings are unauthorized and are improperly recorded as to account, amount and period.||Real estate to total investments.|
|7||Accrued and unearned income on real estate holding is recorded incorrectly as to account, amount and period.||Accrued expense to accrued income.Accrued income to total real estate portfolio.Accrued income from real estate as a percentage of total investment income.|
|8||Real estate holdings are not protected by insurance and any loss in value is not promptly identified and provided for.||Loss to total portfolio – Insurance proceeds from losses to book value – Insurance policy face value to book value.|
|9||Policy loans are unauthorized and are recorded incorrectly as to account, amount and period.||Policy loan balances to total investments – Policy loan balance to total cash value of policies in-force.|
|10||Accrued and unearned policy loan income is recorded incorrectly as to account, amount and period.||Accrued interest on policy loans to total policy loans.Accrued interest on policy loans to total investment income.|
|11||Policy loans are improperly valued and non-admitted assets are not promptly identified and provided for.||Excess of loans to total policy loans.|
|12||Short-term investments are unauthorized, improperly valued and recorded incorrectly as to account, amount and period.||Scheduled maturity dates.Short-term investments to total investments.Composition of short-term investments (e.g., CDs are 50%).|
|13||Accrued and unearned income on short-term investments is improperly recorded as to account, amount and period.||Accrued interest on short-term investments to total short-term investments.Accrued interest on short-term investments to total investment income.|
|14||Other assets are improperly valued and recorded incorrectly as to account, amount and period.||Amortization/depreciation to asset cost.|
|15||Reinsurance assumed and ceded transactions are unauthorized and recorded incorrectly as to account, amount and period.||Reinsurance premiums assumed to premium income.Reinsurance premiums ceded to premium income.Comparison of assumed and ceded in-force in total and by line to total in-force and to prior periods.|
|16||Provisions for income taxes and related assets and liabilities are recorded incorrectly as to account, amount and period.||Income tax provision to pre-tax income.|
|17||Due, deferred and advance premiums are calculated incorrectly and not recorded properly as to account, amount and period.||Due and deferred premiums to total premiums.Advance premiums to total premiums.|
|18||Life policy benefit reserves are incomplete and are recorded incorrectly as to account, amount and period.||Increase in reserves to premium income.Reserves per Rs.1,000 of in-force by line of business.|
|19||Policies with deficiency reserve situations are not identified or properly provided for.||Net premiums to gross premiums.Loss ratios and results of operations for credit business.|
|20||Accident and health reserves are calculated and recorded incorrectly as to account, amount and period.||Unearned premiums to written premiums.|
|21||Other reserves and policy liabilities are incomplete and are not recorded properly as to account, amount and period.||Reserves per Rs.1,000 of in-force.Credit unearned premiums per Rs. 1,000 of life and indemnity in-force.Increase in reserves to premium income.|
|22||Claim liabilities are incomplete and unreasonable and are recorded incorrectly as to account, amount and period.||Numbers and total amounts of due and unpaid and in course of settlement claims.Due and unpaid and in course of settlement amount to total claim reserves.Average claim reserves to average benefit payment amount.|
|23||Other liabilities are incomplete and unreasonable and are not recorded properly as to account, amount and period.||Accrued salary-to-salary expense.Accrued commission-to-commission expense.Accrued salary per employee.Total other accruals to total other expenses.|
|24||Remittances and unallocated items are unreasonable and not current.||Total suspense account to premium income.|
|25||Borrowed money is unauthorized and not recorded properly as to account, amount and period.||Interest expense to average borrowing rate by outstanding debt.|
All About Analytical procedures
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