Audit and Assurance
Wednesday 4 June 2008

3 (a) With reference to ISA 520 Analytical Procedures explain
(i) what is meant by the term ‘analytical procedures’; (2 marks)
(ii) the different types of analytical procedures available to the auditor; and (3 marks)
(iii) the situations in the audit when analytical procedures can be used. (3 marks)
Zak Co sells garden sheds and furniture from 15 retail outlets. Sales are made to individuals, with income being in
the form of cash and debit cards. All items purchased are delivered to the customer using Zak’s own delivery vans;
most sheds are too big for individuals to transport in their own motor vehicles. The directors of Zak indicate that the
company has had a difficult year, but are pleased to present some acceptable results to the members.
The income statements for the last two financial years are shown below:
Income statement
31 March 2008 31 March 2007
$000 $000
Revenue 7,482 6,364
Cost of sales (3,520) (4,253)
—— ——
Gross profit 3,962 2,111
Operating expenses
Administration (1,235) (1,320)
Selling and distribution (981) (689)
Interest payable (101) (105)
Investment income 145 –
—— ——
Profit/(loss) before tax 1,790 (3)
—— —— —— ——
Financial statement extract
—— ——
(b) As part of your risk assessment procedures for Zak Co, identify and provide a possible explanation for unusual
changes in the income statement. (9 marks)
(c) Confirmation of the end of year bank balances is an important audit procedure.
Explain the procedures necessary to obtain a bank confirmation letter from Zak Co’s bank. (3 marks)
(20 marks)



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