Question

Why is it important to consider the quality of the data in analytical procedures? How important to this question are client internal controls?

Answer 1

Analytical procedure can be understood as one of the method of conducting financial audit. This helps in understanding the business and its environment and various other factors by analysing the data.

Analytical procedures consists of three stages for its being performed. They are :

First the, Risk assessment procedures for the purpose of having a better knowledge of business by the auditor and accordingly plan the audit.

Second stage is the substantive analytical procedures, which helps in collecting the various evidences regarding accounting and transactions.

Third stage is final analytical procedure, where financial information are finally reviewed for audit.

As we saw, nalytical procedure is used for conducting audit, it is very important that all the data obtained should be reliable and authentic to rely upon them. Any misinterpretation in data can lead to changes in finadl audit and hence can affect the organization.

The analysis xam be misunderstood or wrongly analysed if the data is not appropriate. The source of data collection also maters whether they are from correct source or not. Therfore we can say that it is very important to be sure of the quality of data used in analytical procedures.

If we talk about how internal controls are important to the analytical procedures, we know that internal controls are processes to assure the authenticity and accuracy in an organization. Some rules are laid in every organization to make sure that financial activities are conducted properly.

Therefore internal controls itself keep a check on quality of data which is an important requirement of analytical procedure. Hence we can say that internal controls are of great importance to the analytical procedures.

If internal controls are properly working in an organization, then all the auditing process will itself go in a very authentic way. It will also prevent the organization from committing any type of fraud.

Internal chontrola also looks for the improvement in the performance of the organization and provides feedback if required. Basically internal controls provide support to the organization and is very important for financial happenings in the organization.

Hence it can be said that it is very important to the analytical procedures.