Configuration
Trial Balance Data
| Account Name | Category | CY Balance | PY Balance | |
|---|---|---|---|---|
The Auditor's Guide to Analytical Procedures Under ISA 520
Complete guide: ISA 520 requirements quick reference, decision flowchart for when to use analytical procedures vs. tests of details, industry-specific ratio checklists for 12 sectors, threshold-setting guide by risk level, sample completed working paper, common quality-review findings, and documentation checklist.
ISA 520 Analytical Review for Government and Public Sector Entities
Public sector audit requires a fundamentally different analytical review approach: the primary comparison is budget versus actual, not prior year versus current year. Government entities operate within approved budgets that represent the legislature's authorisation of spending. Under ISA 520, the auditor's expectation should be derived from the approved budget, adjusted for known in-year changes such as supplementary estimates, virements (budget transfers between programmes), and emergency funding allocations. Budget variances require investigation — underspending may indicate programme delivery failures, while overspending raises questions about authorisation and financial control. The auditor should compare actual expenditure to budget at the programme, department, and line-item level, focusing investigation on material variances.
Programme Expenditure and Accountability
Public sector expenditure accountability demands that funds are spent for the purposes authorised by the legislature. Programme expenditure should be analysed against agreed delivery metrics and output targets. Employee costs typically represent the single largest expenditure category (50-70% for service-delivery organisations) and should be reconciled against headcount data, pay scale movements, and vacancy management. Transfer payments — grants and subsidies paid to other entities — should be analysed against programme budgets and compliance with disbursement conditions. Capital expenditure should be compared to the approved capital programme, with timing variances explained by project progress reports. Infrastructure asset valuations involve significant estimation and should be analysed for consistency with capital maintenance and replacement programmes.
Revenue Analysis and Intergovernmental Transfers
Tax revenue should be analysed against economic indicators (GDP growth, employment data, property values) and tax policy changes (rate changes, new taxes, changed thresholds). Grant income from higher-level governments should reconcile to approved allocations and meet any performance conditions attached. The auditor should assess whether the basis for revenue recognition is consistent between periods and whether any revenue has been recognised prematurely. Public sector borrowing should be analysed against the approved borrowing programme and debt management strategy. Interest costs should correlate with the average debt balance and applicable rates. Pension obligations — often the most significant liability for public sector entities — require actuarial assessment and should be analysed for consistency with demographic assumptions (mortality, salary growth, discount rates) and membership data.
Key Ratios to Monitor for Government & Public Sector
- Budget utilisation rate
- Employee costs as % of total
- Grant expenditure vs. conditions
- Capital vs. revenue expenditure ratio
- Programme delivery efficiency
What Drives Account Fluctuations
Budget allocation changes between fiscal years
Policy decisions affecting programme scope and funding
Employee cost changes from pay awards and headcount
Capital programme timing and delivery delays
Inter-governmental transfer and grant flows
Seasonal Considerations
Government spending often accelerates toward fiscal year-end as departments seek to utilise budget allocations. Tax revenue collection follows statutory deadlines and may be seasonal (quarterly VAT, annual income tax). Capital programmes have multi-year horizons with phased spending profiles.
Recommended Investigation Thresholds for Government & Public Sector
| Account Category | Threshold % |
|---|---|
| Revenue | 5% |
| Cost of Goods Sold | 10% |
| Operating Expenses | 10% |
| Current Assets | 15% |
| Equity | 10% |
Regulatory note: Government entities are subject to specific audit mandates (Comptroller and Auditor General, local audit bodies). IPSAS or local public sector accounting standards may apply instead of IFRS. Value-for-money considerations extend beyond financial statement audit.
Worked Example: Government & Public Sector Analytical Review
A municipal government with a €120M annual budget. Overall materiality €2,400,000, performance materiality €1,560,000.
Overall materiality: €2,400,000 | Performance materiality: €1,560,000 | Threshold: 10%
| Account | PY | CY | Change | % |
|---|---|---|---|---|
| Tax Revenue | €68,000,000 | €72,000,000 | €4,000,000 | +5.9% |
| Central Government Grants | €48,000,000 | €45,000,000 | €-3,000,000 | -6.3% |
| Employee Costs | €49,000,000 | €52,000,000 | €3,000,000 | +6.1% |
| Programme Expenditure | €35,000,000 | €38,000,000 | €3,000,000 | +8.6% |
| Transfer Payments | €17,500,000 | €18,000,000 | €500,000 | +2.9% |
| Capital Expenditure FLAG | €22,000,000 | €15,000,000 | €-7,000,000 | -31.8% |
| Borrowings FLAG | €58,000,000 | €65,000,000 | €7,000,000 | +12.1% |