## SA 520 — Objectives, Purpose, and Investigating Results
### Objectives of the Auditor Under SA 520
1. To obtain relevant and reliable audit evidence when using Substantive Analytical Procedures (SAP); AND
2. To design and perform AP near the end of the audit that assist the auditor in forming an overall conclusion on whether the financial statements are consistent with the auditor's understanding of the entity.
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### Purpose of Analytical Procedures
AP use comparisons and relationships to assess whether account balances or other data appear reasonable. Key applications:
| Area | What AP Can Reveal |
|---|---|
| Sundry debtors | Whether discrepancy is due to unrecorded debit or unapplied remittance |
| Sundry creditors | Whether discrepancy arises from uncredited goods received or unrecorded remittance |
| Inventory (RM/Stores) | Excesses or shortages → may indicate misappropriation or premature issue entries |
| Interest & Dividends | Reconciling accrued vs. collected amounts → detects adjustment or recording errors |
| Inter-firm / Intra-firm | Comparison across entities or time periods for broader insights |
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### Investigating Unusual Results
When AP produce unexpected fluctuations or unusual relationships, the auditor must:
Step 1: Inquire of management and obtain appropriate audit evidence supporting management's explanation.
Step 2: Perform other audit procedures if:
- Management cannot provide an explanation; OR
- The explanation, even with corroborating evidence, is not considered adequate
> Critical rule: Management's explanation alone is never sufficient audit evidence. It must be corroborated by independent evidence.
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### Two Distinct Purposes by Timing
| Timing | Purpose |
|---|---|
| Substantive AP (Testing phase) | Detect material misstatements in account balances |
| AP at Completion phase | Form overall conclusion — do FS make sense holistically? |