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in the reliability of the information and, therefore, in the results of analytical procedures.
.73 An unsophisticated predictive model can sometimes be effective. For example, where a small entity has employed a known number of staff at fixed rates of pay throughout the period, it will ordinarily be possible for the auditor to use this data to estimate the total payroll costs for the period with a high degree of accuracy, thereby providing audit evidence for a significant item in the financial report and reducing the need to perform tests of details on the payroll. The use of widely recognised trade ratios (such as profit margins for different types of retail entities) can often be used effectively in analytical procedures to provide evidence to support the reasonableness of recorded items. The extent of analytical procedures in the audit of a small entity may be limited because of the non-availability of information on which the analytical procedures are based.
.74 Predictive analytical procedures can often be an effective means of testing for completeness, provided the results can be predicted with a reasonable degree of precision and confidence. Variations from expected results may indicate possible omissions that have not been detected by other substantive tests.
.75 However, different types of analytical procedure provide different levels of assurance. Analytical procedures involving, for example, the prediction of total rental income on a building divided into apartments, taking the rental rates, the number of apartments and vacancy rates into consideration, can be a very persuasive source of evidence and may eliminate the need for further verification by means of tests of details. In contrast, calculation and comparison of gross margin percentages as a means of confirming a revenue figure may be a less persuasive source of evidence, but may provide useful corroboration if used in combination with other audit procedures.
Analytical Procedures as Part of the Overall Review
.76 The analytical procedures ordinarily performed at this stage of the audit are very similar to those that would be used at the planning stage of the audit. These include the following:
• Comparing the financial report for the current year to those of previous years.
• Comparing the financial report to any budgets, forecasts, or management expectations.
• Reviewing trends in any important financial report ratios.
• Considering whether the financial report adequately reflects any changes in the entity of which the auditor is aware.
• Inquiring into unexplained or unexpected features of the financial report.
AUS 514: Audit Sampling and Other Selective Testing Procedures
.77 There are a variety of methods of selecting items for testing, the auditor’s choice of an appropriate method will be guided by considerations of effectiveness and efficiency. The means available to the auditor are:
(a) Selecting all items (100% examination);
(b) Selecting specific items; or
(c) Audit sampling.
.78 The small populations ordinarily encountered in small entities may make it feasible to test:
(a) 100% of the population; or
(b) 100% of some part of the population, for example, all items above a given amount, applying analytical procedures to the balance of the population, if it is material.
.79 When the above methods of obtaining audit evidence are not adopted, the auditor considers the use of