Common Size in Analytical procedures

Firstly analytical procedures are important part of the audit process and consist of evaluation in financial information that auditor make of plausible and expected relationship between financial & non-financial data. The auditor range from simple comparisons.

Analytical procedures can be used as substantive test to obtain the evidential natter about particular assertions that related to account balances on classes of transactions.

Analytical Procedures have categories:

• ·       Comparisons of absolute numbers
• ·       Comparisons of the results of mathematical computations which is:

a.      Ratio analysis

b.    Common-sizes financial statements

c.      Trend analysis

• ·       Regression analysis

For now I only concern on point two in comparisons of the result of mathematical computations which is Common-sizes financial statements.

Common-sizes financial statement is an income statement in which account is expressed as percentage of value of sales. This can be used to make analysis between companies/between time periods of company much easier. From this financial statement, the analyst can determine how the various components of income statement can affect company’s profit.

From this financial statement also the investors have a chance to see how much expense can deduct from revenue to net income. Analyst can use this financial statements to understand how much expenses are changing as percentage of revenue.

Here are the example of Common-Size Financial Statements from Apple Inc

References:

-        https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00329.pdf

-        http://www.investopedia.com/terms/c/commonsizeincomestatement.asp

Created by:

Lintang Maharani

C1L014028

International Accounting

Jenderal Soedirman University