Sunday, September 15, 2013

Ethical Threats in Deloitte (UK)

- relevant to F8, P7 students and to some extend P1.

IFAC requires all Accounting professionals to adhere to ethical principles of objectivity, professional due care & competence, confidentiality and integrity when dealing with audit clients. Primary reason is to act as Independent Corporate Governance tool so as to protect shareholders' confidence when they read Auditors' Report. 
PIC 01: Giant Audit Firm faced Ethical Threats

When failure to comply this is a serious professional negligence that UK court will not hesitate to punish.

Accountancy giant Deloitte has been fined £14m over "persistent" failings in its dealings with collapsed car manufacturer MG Rover.
PIC 02 : UK Iconic Car that saw its business collapsed


Financial watchdog says the global accountancy firm repeatedly failed to spot conflicts of interest during consultations.

The Financial Reporting Council (FRC) ruled both Deloitte and former Deloitte partner Maghsoud Einollahi had displayed a "persistent and deliberate disregard" of accountancy ethics by failing to spot conflicts of interest during consultations in 2005.
Einollahi, now retired, was fined £250,000 and banned from practising as an accountant for three years.  

Deloitte had been advising a group of former MG Rover directors known as the Phoenix Four during a failed attempt to revive the company, having purchased it for a nominal fee of £10 five years previously. 

Both Deloitte and Einollahi had "placed their own interest ahead of that of the public" and "compromised their own sense of objectivity" during consultations, the FRC said. 
The West Midlands car maker collapsed into administration in 2005 with debts of £1.4bn and more than 6,000 job losses. 

The tribunal in July found against Deloitte on all 13 allegations, including failing to properly consider the public interest. 

It said two flawed deals in 2001 and 2002 benefited the Phoenix Four rather than MG Rover, and also earned Deloitte hefty fees.

Deloitte said it was disappointed with the outcome and disagreed with the tribunal's main findings.
It has 28 days to decide whether to appeal.

FRC executive director for conduct, Paul George, said the fines aimed to deter misconduct and "bolster public and market confidence".

A Deloitte spokeswoman said the firm took its public interest obligations seriously.
She said: "We are disappointed that the efforts we and others made did not successfully secure the long-term future of the MG Rover Group."

She added the tribunal did not criticise the quality of its work, but still found against it, and warned this could have negative implications for the advice firms and members can provide.

Final Note: Who says ACCA studies are boring? Look! Real life demonstration and application.

Source: http://news.sky.com/story/1139293/deloitte-fined-14m-over-mg-rover-collapse, 2013 

PIC 03: The once proud factory that was sold to a new Chinese investor

PIC 04: Rover's Factories were uprooted and transferred to China

PIC 05: Rover's technology sold under the new name - Chinese brand Roewe. Still an excellent car.


INVITATION TO ALL ACCA Affliates 
PIC 06: ACCA Collaboration with AGC for  Graduation Ceremony

PIC 07 : AGC's Graduation Venue in 2013

PIC 07: See you there!

ACCA Graduation Committee (AGC) in collaboration with ACCA (KL) will have a graduation convocation this coming 5th October 2013 at Kuala Lumpur Convention Cente. You may register by visiting http://www.ksacitycampus.com/ . 

We celebrate your success!

Monday, August 26, 2013

ACCA Graduation Ceremonies (5th October)

 - relevant to all ambitious ACCA candidates

Dear Hardworking ACCA candidates,

Exam results are out. Time to laugh/celebrate or to sob/regret is over. Time to move on and study really really hard. So hard that you put the Bees and Japanese men to shame.

I attended the Oxford Brookes University graduation held in Renaissance Hotel on 25th August. So pleased to see so many graduates coming from 16 countries including Singapore, Indonesia, Thailand, Hong Kong, Maritius and of course Malaysia.

Kasturi School of Accountancy wishes a HEARTIEST CONGRATULATIONS to our newly minted University Graduates from UK Based Institution! WELL DONE! SO happy to share joy with you, your family and friends on this auspicious memorable occasion.

Pic 01: Oxford Brookes graduates from over 16 countries

Pic 02: Panel of Oxford Brookes. Datuk Zaiton Mohd Hassan, President of ACCA Malaysia Advisory Committee (second from left)  and Mr Paul Inman, Vice Pro-Chancellor of Oxford Brookes University is seated second from right and



Pic 03: Professor Paul Inman towering at 6 feet 5 inches tall on the right. Next to me is my cool colleague, costing and finance expert lecturer Mr Andrew Pang. The one on left, Mr Dinning (hope got his name correct) said he did very well that morning in clapping hands non-stop. Useful man, isn't he? ANOTHER QUESTION: Who design those silly hats?



Pic 04: A Graduate representative speaker, Ms Jasmine Sin, on behalf of all graduates. A Hardworking Malaysian with UK University qualification pursuing career in Singapore.

(See Pic 04) One Graduate student said, "Never give up in trying. Never be afraid to fail for it means you are afraid to try. Graduation marks the end of learning but a beginning to new learning in career."



IT was pleasing to meet the Oxford Brookes Examiners too. Good useful tips on how to achieve Grade A in RAP.

ACCA Graduation Committee (AGC)
ALL newly qualified ACCA affliates are warmly welcome to attend the ACCA Graduation to be held on 5th October 2013 at Kuala Lumpur Convention Center. Please visit www.ksacitycampus.com for application form. 

Please note that AGC is organised in joint collaboration with ACCA and ALPs. 

Best regards,
Marcus


 


Which is your favourite Picture?

Reader's digest said that Laughter is the Best Medicine. Yes, to de-stress from a regime of jamming ideas into our over-loaded grey matter.

Have a look! Tell me which is your favourite picture by putting your comments below the article.

Enjoy!












Tuesday, August 13, 2013

How Malaysian Universities rank in Asia? (edited version)

- relevant to ALL ACCA P-Level students 
IMPRESSIVE MALAYSIAN (WORKING) STUDENTS
I am always impressed with our Malaysian students. They are so hard working, focused, disciplined and despite the work pressure they are still constantly looking to upgrade themselves in qualifications and job performance.

LAGGING MALAYSIAN UNIVERSITIES
What is the ranking of  Malaysian Universities in the Top 30? Well read the article below. Is it there? I feel disappointed that Malaysian Universities don't push themselves in new research and collaborate with commercial sector to develop new technologies, discoveries and knowledge.

Hence, I feel short changed, that I study and study hard at that in a local university only to see its ranking and recognition slipped.

UP THE ANTE (to increase the quality)
Any ACCA Candidate competing for a private sector job with other Malaysian University Degree Holders can up the ante by having a UK Qualification. The latter is better. Yes, the audit industry such as PWC, KPMG, Touche Deloitte or Ernst & Young recognise this UK based University degree to join them as professional auditors.

What about our students who already have a Malaysian University degree? I am afraid to say they have to keep up the race by completing Professional qualifications such as ACCA. Worldwide recognition for it. Go ahead and even push for Masters Postgraduate studies such as MSc. (Master of Science) to compete in the private sector. There are few exceptions who have a local Malaysian degree and still want to add another degree, hence a double degree qualification. So these rare ones also pursue a University Degree from UK.

Please find our more in our FREE PREVIEW seen below. Register or call our staff to book your free notes. Please visit http://www.ksacitycampus.com/ for contacts.

 __________________________________________________________________________
KUALA LUMPUR: A survey carried out by the Times Higher Education, ahead of its inaugural World Academic Summit in October, shows that Asian universities are front runners in getting investments for their researches.

The Times World Academic Summit Innovation Index gives a global snapshot of how successful the world's top universities compete for research funds. 
There are nine Asian countries featured in the Index, with over 50% of its institutions ranked in the top 10 list — more than any other continent. 

Coming in at the top of the list is Korea, where the findings of the survey show that global companies are investing the equivalent of nearly US$100,000 (RM325,000) in each Korean scholar to carry out work in innovation and research on their behalf.

This is compared to less than US$10,000 per head for countries lower down the index. 
Second on the list is Singapore, with companies willing to fork out US$84,500 per researcher. 
As recent as last month, scientists at the Nanyang Technological University (Singapore) showed off their latest "invisibility cloak" by making a cat and a goldfish vanish.
The device — which is capable of making anything within its confines disappear from direct sight — could have serious real-world applications in the field of security or entertainment.
In addition to Korea and Singapore, the top 10 includes Taiwan in sixth place (US$53,900) and China in seventh (US$50,500) .
At number 10, India is ranked the fifth most commercially valuable country in Asia, with big business pouring in an average US$36,900 per researcher. Yet, all the three Indian institutions featured in Times Higher Education's annual World University Rankings fall below 226th position.
Of the 30 countries featured in the list, Malaysia did not rank. 

The traditional educational powerhouse, the US, lies in the middle of the table in 14th position, with industry contributing nearly four times less to its academic researchers (US$25,800 per person) than that of Korea. 

Similarly, the United Kingdom and Ireland — with centuries of prestigious academic heritage behind them — lag far behind the rest of the world. At fourth from bottom (26th), the UK only attracts US$13,300 per researcher from industry, while Irish academics come last (30th), receiving just US$8,300 each to carry out their work. 

This apparent lack of appetite for Western investment by big business is in contrast to the fact that some of the world's most significant developments historically come from American and British institutions. 

Without research carried out by professors Donald Bitzer and Gene Slottow at the University of Illinois (USA), for example, the plasma screen — the modern, flat screen television — would not exist.

However, it would seem that in recent years, the world's increasing enthusiasm for technological advancement and computer science has seen big business shift its attention eastward to Asia; a region now known for its strong manufacturing sector and traditional academic focus on these subject areas.
Commenting on the findings, a spokesman for the Times Higher Education World Academic Summit said that an ability to attract funding from big business could be a case of sink or swim. 

"This new index is drawn from the same data used for the Times Higher Education's annual World University Rankings and is a really pertinent exercise." 

"That South Korea and Singapore are the top two countries listed in this new table, with other Asian nations like Taiwan, China and India all making the top 10 will be a shocking wake-up call for the West. It seems that the balance of power is destined to tip further eastwards."

Sources: 
This article first appeared in The Edge Financial Daily, Aug 12, 2013.

Tuesday, August 6, 2013

Oxford Brookes University's Mentorship & New links for ACCA Students

Dear Students,

On new links, I have inserted "London News" and "UK Business News" for your reference. It is good to know the happenings in London as you are taking a UK Based exam.

Read widely related to your exam papers.

The link to Student-Accountant Magazine is also reset.

Enjoy taking in knowledge and gives you upper edge in exams.

All the best to upcoming ACCA Results.

Look out for my Oxford Brookes University Research-Mentorship programme coming soon. It should be launched on 17 August, 2013.

"Never Give Up. I say once more, "Never,Never Give Up!" " (Winston Churchill, 1939 - UK Prime Minister during World War II)

Best Regards,
Marcus



Thursday, July 25, 2013

Being Beautiful is a Disadvantage

- Relevant to all ACCA Students awaiting results


Beauty - a limitation? 




We enjoy beautiful things in life. Be it starry skies, breathtaking waterfalls, awesome nature or gorgeous ladies. Well, the feminine gender can be appealing to the eyes, but there is a downside. In USA Iowa Court has ruled that it is legal for a male employer to fire a female employee simply because she looked too attractive. That's right! You read it correct. 


Reason is the gorgeous lady can be too distracting to male colleagues. Thus causing loss of work productivity. So, is this a disadvantage to our ACCA-undergraduate ladies? 



Who is Beautiful?

This is a tricky question - How many of our students are beautiful (Compare Picture 01)? I am directing this question only to ladies, not guys! In my opinion, every lady is pleasant to the eyes, however Beauty lies in the eyes of the Beholder (in some cases Stalkers!). 


 






What should be done?

To be fair, it is not the fault of one looking pretty and attractive. But to minimise such risks, it is best that one invest in "Substance Over Form", if you allow me to borrow F7/P2 Expert lecturers. Yes, invest in brains rather than looks. If ACCA AFFLIATE Ladies is to venture into employment, their skills are highly demanded rather than skin-deep looks. Employers fighting off personal temptations may not see you as a threat but a value added staff to the firm. 


 





Solution

There you go! Graduate with ACCA, possibly University Degree or even POSTGRADUATE studies will enhance your career. Better still, you become the employer. See Yahoo's Hot but brainy CEO Melissa  (See Picture 02)


Final Word : If Handsome Men?
The question is - Is it legal for a Lady Employer to fire a Male Staff because he is too handsome? If so, poor
Bae Yong-joon, Sharukh Khan, Henry Cavill or  any wannabe Joe Actor trying to look for work in your firm. (See Picture 04-07)


Well, if it is legal to fire a beautiful lady, I can't see why it is not legal to hire a handsome man. Why, you can lock up a handsome man forever legally, of course, I think you know what I mean.






ACCA RESULTS 

Prepare yourself to accept the coming ACCA Results this 8th August, 2013. Remember, finish the journey ie to complete ACCA. Don't allow speed bumps along the way to discourage or de-rail your ambition. 

My favourite quote from Churchill (1939), "Never Give Up! I say once again, Never, Never Give Up!"  


______________________________________________________

Court's Decision

IOWA CITY, Iowa (AP) — The Iowa Supreme Court on Friday stood by its ruling that a dentist acted legally when he fired an assistant because he found her too attractive and worried he would try to start an affair.

 

 

Coming to the same conclusion as it did in December, the all-male court found that bosses can fire employees they see as threats to their marriages, even if the subordinates have not engaged in flirtatious or other inappropriate behavior. The court said such firings do not count as illegal sex discrimination because they are motivated by feelings, not gender.

The ruling upholds a judge's decision to dismiss a discrimination lawsuit filed against Fort Dodge dentist James Knight, who fired assistant Melissa Nelson, even while acknowledging she had been a stellar employee for 10 years. Knight and his wife believed that his attraction to Nelson — two decades younger than the dentist — had become a threat to their marriage. Nelson, now 33, was replaced by another woman; Knight had an all-female staff.

The all-male court issued its revised opinion Friday in the case after taking the unusual step last month of withdrawing its December opinion, which had received nationwide publicity, debate and criticism. 

Nelson's attorney, Paige Fiedler, had asked the court in January to reconsider, calling the decision a blow for gender and racial equity in the workplace. She had warned the opinion could allow bosses to legally fire dark-skinned blacks and replace them with light-skinned blacks or small-breasted workers in favor of big-breasted workers.

The court had only granted reconsiderations five times in the last decade.


Final Word

Be self-employed like Tennis Star Sharapova would be one solution. (see picture 07)


 


Source: 

Anonymous, 2013,Melissa Nelson firing: Iowa Supreme Court upholds ruling affirming decision, http://www.wjla.com/articles/2013/07/melissa-nelson-firing-iowa-supreme-court-upholds-ruling-affirming-decision-91289.html, Visited on 25th July.

______________________________________________________________________________

Tuesday, May 21, 2013

JP Morgan's Jamie Dimon in shareholder revolt over role

- highly relevant to P1 GRE Candidates.

Jamie Dimon  


JP Morgan's board says keeping Jamie Dimon in both jobs is the "most effective leadership model"
 
JP Morgan chairman and chief executive Jamie Dimon is facing a shareholder revolt as investors prepare to vote on whether he should be allowed to keep both jobs. 

A group of shareholders has demanded an independent chairman to help protect the bank from future trading fiascos.

The fallout from the so-called London Whale trades, which cost the US bank $6.2bn (£4bn), has sparked the furore.

Support for the proposal is running at just over 40%, according to Dow Jones. 

Although the result of the vote is non-binding, meaning Mr Dimon could continue as before, reports have suggested that he may resign if the votes are not in his favour.

Both Glass Lewis and Institutional Shareholder Services, influential firms that give advice to large shareholders, are recommending that the jobs be split. 

"An independent chairman is better able to oversee the executives of a company and set a pro-shareholder agenda," Glass Lewis argues in its proxy report.

Last year's annual meeting, which came just after the London Whale losses were first revealed, saw 40% of shareholders vote for a similar proposal. On previous occasions in 2007 and 2008 when shareholders were asked about separating the roles, just 15% voted in favour. 

"Even a Master of the Universe can be swallowed by a London whale," said Lee Saunders, president of public employees' union AFSCME, which is also voting for the roles to be split.

London Whale In April last year, JP Morgan reported a loss in a London-based division responsible for using trades to hedge the bank's overall risk in markets.

At the time, Mr Dimon dismissed the incident as a "tempest in a teapot". But just a month later, he admitted the bank had lost about $2bn on the erroneous trades and was forced to acknowledge that the bank had shown "bad judgement".

Bruno Iksil, the trader at the heart of the incident, was dubbed the London Whale because the huge positions he had taken on JP Morgan's behalf were big enough to move markets. 

Despite the incident, the bank insists that the joint role is the "most effective leadership model." Last week, it sent a letter to shareholders, urging them to reject the proposal to split the top two roles.
"We believe that a vote against our current directors or a vote to permanently separate the chairman and chief executive officer positions could be disruptive to the company and is not in shareholders' best interests," it wrote.

Record profit The vote comes just after JP Morgan reported record first-quarter profits of $6.5bn (£4.2bn) for the first three months of the year. Retail banking deposits rose 10%, new mortgage orders rose 37% and the company said it had kept the top spot for earnings from investment banking.

Mr Dimon has said the results indicate that no changes are necessary to either the bank's board or its financial structure.

"The board should be applauded," Mr Dimon is reported to have said at a conference last week in Boston. 

Oh how much class the ruling class have. On a conference call with investors and analysts JP Morgan CEO Jamie Dimon displayed the kind of wit and grace one could only expect from the truly refined – not only agreeing to answer a mere peasant’s question but offering illumination into his heavenly projection into the boundless stratosphere of plutocracy.

Conversation reflecting Dimon's arrogance and dominance over JP Morgan's Board: 
At a J.P. Morgan investor event this week Mike Mayo, an analyst at CLSA, who has been a critic of large banks and, at times, Dimon, asked if J.P. Morgan wasn’t at a competitive disadvantage compared to more highly capitalized peers.
Mayo: I think what I hear UBS saying in the presentation is that if I’m an affluent customer I’ll feel a lot better going to UBS if they have 13.5 (percent) capital ratio than another big bank with a 10 percent ratio. Do you agree with that?
Dimon: You would go to UBS and not JPMorgan?
Mayo: I didn’t say that. That’s their argument.
Dimon: That’s why I’m richer than you.
(Laughter, perhaps embarrassed, perhaps of the schoolyard variety, ensues.)
P1 GRE style Exam Question: 
By splitting the roles of Chairman and CEO, what impact will it have on JP Morgan? 

Monday, April 22, 2013

Are Malaysians Richer by 50%? Applying Audit Techniques (Part 2)

- highly relevant to F8 and P7 candidates

A. If Malaysians Average Income have increased 49% from 2009 to 2012, why MORE qualify for the BR1M payouts?

Pic 01: Original number forecast of poor people needing aid.
When launching the ETP, PEMANDU said, “A key focus will be on ensuring that substantial improvements are made for people with the lowest household incomes.” Ironically, it is another so-called ‘achievement’ of PEMANDU which is really the total failure of the ETP in terms of raising the incomes of poor Malaysians.



The number of Malaysians eligible for welfare has been INCREASING under PEMANDU’s tenure. It was originally estimated that only 3.4m households comprising 53% of total households in Malaysia earned less than the RM3,000 per month threshold for entitlement to the RM500 Bantuan Rakyat 1 Malaysia (BR1M) handout . But ultimately, approximately 4.2 million applications were approved which resulted in RM2.1billion being paid instead of the originally anticipated RM1.8billion. Under the latest BR1M 2.0, which also includes individuals earning less than RM2000 per month, a total of 6.1m applications have been approved.

Pic 02: Malaysian Caretake government were surprised that there were many more poor people.


Applying Substantive Analytical Procedures:

If GNI per capita has indeed soared 48.8% in two years as PEMANDU claims, why has the number of Malaysians who are eligible for welfare handouts increased? Over 20 million Malaysians, or nearly 70% of our population are on welfare while PEMANDU trumpets projects and investments under the ETP.



The average income in Malaysia has INCREASED. At the same time the number of poor income group earners qualify for BR1M has also INCREASED. This could only mean that the poor income level has DECREASED while the rich income group has INCREASED.



If the cities folks income has remained stagnant, then it could only mean that our Malay, Chinese, Indian, Iban, Kadazan & Dusun brothers income in the rural areas have DECREASED. 

B. What is the implications that Committed Investment has fallen 82% from 2011 to 2012 ?

Committed investments slumped 82% from RM179.2b in 2011 to RM32.1b in 2012. Recaling the earlier article ( Part 1 ), the actual investment in 2012 is unknown. This implies that investment is so low that PEMANDU conveniently avoid disclosing it.




Applying Substantive Analytical Procedures:



The ETP experienced a spectacular reversal in its second full year of existence in 2012. The value of committed investments in 2012, their Gross National Income (GNI) impact and the number of JOBS CREATED COLLAPSED compared to the previous year.




Reflecting the low value-added nature of these investments, the number of jobs expected to be created fell too but by a 70% from 313,741 in 2011 to 94,702 in 2012.



C. What kind of jobs are likely created? 

The jobs created are likely to be low-income levels since a substantial bulk of committed investment are unskilled labour intensive industry involving constructions, infrastructure development, schools and hospitals projects. 

Pic 03: Transformation programme were mainly unskilled labour intensive work. The CIMB Group (Cambodia, Indonesia, Myammar, Bangladesh immigrants)  stands to benefit the most.

Applying Substantive Analytical Procedures:
Go ahead please, read The Star paper and caretaker Government’s commitment to deliver their promise to Selangor state. These are mainly low end jobs creation.



D. Did the Year 2011 Committed investment spillover to 2012?

The actual investments in 2011 was only RM12.9b, what happened to the balance committed investment of RM166.5billion?



Applying Substantive Analytical Procedures:

Any reasonable Malaysian would expect to see a large amount of actual investments in 2012 from the RM179b committed by 2011 Entry Point Projects (EPPs). They have had a whole year or more to be rolled out, and would have had the help of PEMANDU cutting red tape and fast tracking processes.


Pic 04: Google Office comprising of Knowledge workers. Malaysia is the World's 3rd best in exporting talents - 1,000,000 members.




The 2012 ETP Annual Report fails to state the breakdown of investments between the public (government) and private sector . Malaysia has failed to retained its top talents, instead these have moved overseas seeking high value and skilled profession. Note that the private sector by its nature motivated by wealth seeking objectives will act faster in implementing committed projects. ETP expects private sector contribute 92% of the investment necessary to drive the ETP.

Pic 05: Hmmm... IAS 24 on Related Parties Transactions says disclosures required in respect of those parties, including the compensation of key management personnel. So that would include the Prime Ministers and his managerial personnel working for Malaysia Incorporated., doesn't it?



The miserable investment, GNI impact and job figures for 2012 coupled with the absence of disclosure on the amount of actual investments and the public-private breakdown suggests the following logical conclusions:

1. That many of the announced EPPs, especially those in 2011, have failed to take off;

2. That the private sector is not driving the EPPs as originally envisioned; and

3. That the private sector is losing confidence and interest in the ETP.


VERDICT : FAILURES by a Spectacular Degree


Conclusion : SUSTAINABLE Solutions

If PEMANDU and the ETP were truly about transforming our nation for the better, there must be far more emphasis on improving education, skills and the social and business environment. They must also have the political will to combat grand corruption rather than just clear red tape and increase competition by dismantling monopolies which are controlled by political cronies. Finally they must be honest and transparent about their achievements rather than resort to manipulating statistics in order to deceive the public. Only then can we take real steps towards a future where all Malaysians can have the dignity of decent jobs, housing and security.


Pic 06: Vote YOURSELF for a better future. Can you graduate as ACCA Affliate or Masters Degree?
These topics belong to P1 (GRE) on Corporate Transparency and Accountability and P3 (BA) on Strategic Re-positioning, don’t they? 

FINAL NOTE TO ALL ACCA Candidates: 

PS: Every Malaysian has the democratic right to cast their vote. No doubt about it. However, do note that if you spend precious time going to home town to do that, statistically your vote is insignificant out of total voters population of 13.3 million. Thus, your vote is unlikely to affect the final election results. I know, I know. You will say we must vote to change for a better Malaysia.


Still, you are better off in voting YOURSELF, invest in ACCA studies in preparation of the real election results – will you be elected as an ACCA Affliate? Just a thought to encourage you to achieve your success. 

Hey, in 5 years time, if you are fed up of the incumbent government of 2013, you can still vote right? 



Sources
1) http://www.pemandu.gov.my/gtp/Improving_Rural_Basic_Infrastructure-@-GTP_2@0_Improving_Rural_Development.aspx, 2013

2) http://refsa.org/, 2013

Thursday, April 18, 2013

What are Substantive Analytical Procedures?

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Critically relevant to F8 and P7 Candidates

Tutorial Notes:

Explanation of analytical procedures

'Analytical procedures' means evaluation of the financial and other information, and the review of plausible relationships among both financial and non-financial data. For example, sales have a direct relationship with royalty expenses, provided royalty payments are based on the number of units sold. Therefore analytical procedures will include determining whether the sale for a period has a direct relationship with the royalty expenses incurred during the same period.



The analytical procedure also includes investigation of identified fluctuations and relationships that are inconsistent with other relevant information or deviate significantly from predicted amounts. For example if the relationship between sales and royalty expenses is not direct, then the auditor would investigate the reasons for the deviations because it indicates a possibility of a misstatement of either sales or royalty expenses in the financial statements.



Analytical procedures help in understanding an entity and its environment and its overall review at the end of the audit. They are also used as substantive procedures when their use can be more effective or efficient than tests of details, in reducing the risk of material misstatement at the assertion level to an acceptably low level.



How can Substantive Analytical Procedures by used?



The different types of analytical procedures available to the auditor are as follows:

Comparison with prior periods

Comparable information of the current year is compared with information relating to prior periods. This comparison helps to identify unusual changes or fluctuations in amounts. For example a comparison of revenue and gross profits of the current year with the amounts of the previous year will help determine the percentage of growth in sales and whether the gross profit margin was similar as in the previous year.

Another Example: 
The contagious virus H7N9 is spreading in China. What is the plausible relationship to the air travel industry? The expectation is FEWER travellers to China and rest of Asia. Thus, expect that the highly geared airline companies with high exposure to Asian markets to have significant lower passengers load and may pose a Going Concern risks. 

Pic 01: Bird Flu making Chinese nervous? Or Doctors on way to work?

Pic 02: Chip! Chip! Chip! Buy 1 Free 2.

Pic 03: Expect airline industry in Asia to experience big declines. A Going Concern issue?

Pic 04: Travelers thinking, "Where to go? Beijing? Sao Paolo? "


Comparison with anticipated resulted

Actual results are compared with anticipated results of the entity or budgets and/or forecasts. Unusual discrepancies identified by the comparisons indicate a possibility of misstatement in the area where the discrepancy is noticed. This would have to be investigated by further audit procedures. For example a comparison of sales will be made with budgeted sales and if major deviations are noticed, these would have to be investigated. In fact if the actual results show a significant fall as compared to the budgeted results, the auditor may have to investigate whether the going concern status of the entity is affected.



Comparison with industry information

Client information is compared with industry information either for the industry as a whole or by comparison with entities similar in size to the client. For example, receivable days of a client are compared with the receivable days of the industry.


End of Tutorial Notes

Next article, I will demonstrate how you apply them on Government Top Think Tank's PEMANDU's performance. 

URGENT: SBL Exam Guidance for Dec 2018 Exams

EVERY SUCCESS IN YOUR DECEMBER 2018 EXAMS Change is the only constant. Kasturi Core lecturing team has now moved to 2 new locations. ...