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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 Transportation & Logistics
Transportation and logistics entities operate in a capital-intensive, operationally complex environment where revenue is earned per unit of transport service (tonne-kilometre for freight, passenger-kilometre for passengers) and costs are dominated by fuel, labour, and fleet depreciation. Under ISA 520, the auditor should develop revenue expectations based on volume data (tonnes/passengers transported) multiplied by average rates. For a freight company transporting 500 million tonne-km at an average rate of €0.08/tonne-km, expected revenue is €40M. Deviations indicate changes in volume, rates, or route mix. Fuel costs — typically 25-35% of revenue for road transport — should be correlated with both activity levels (kilometres driven) and fuel price indices. A 10% fuel price increase without a corresponding revenue increase (through fuel surcharges) directly compresses margins.
Fleet and Maintenance Cost Analysis
Fleet depreciation and maintenance are the second and third largest cost categories. Depreciation should be consistent with the fleet size and age profile — new vehicle acquisitions increase the depreciation charge while disposals reduce it. The auditor should verify that the fleet register supports the depreciation calculations. Maintenance costs typically increase as the fleet ages — a young fleet requires less maintenance but higher depreciation (due to higher cost base), while an older fleet shows lower depreciation but higher maintenance. The total cost of ownership (depreciation + maintenance) per vehicle-year should be relatively stable. Significant changes indicate fleet age profile shifts, maintenance policy changes, or operational intensity variations. IFRS 16 lease accounting has significantly affected transportation balance sheets — many fleet assets are leased, and the right-of-use asset and lease liability should be analysed for consistency with the known lease portfolio.
Route Profitability and Regulatory Costs
Transportation entities should be analysed at the route or service line level where data permits. Profitable routes subsidising loss-making routes is common but the overall mix should be stable between periods. Changes in the route portfolio (new routes, discontinued routes) directly affect revenue and cost patterns. Regulatory compliance costs are increasingly significant — emissions standards, driver working time regulations, safety certification, and environmental levies all create cost pressures. The introduction of new regulations (such as low-emission zone charges or electronic logging device mandates) can cause step-changes in the cost base that the auditor should verify against known regulatory changes. Insurance costs for fleet operations are significant and should be analysed against the claims history and fleet risk profile.
Key Ratios to Monitor for Transportation & Logistics
- Revenue per tonne-km
- Fuel cost as % of revenue
- Fleet utilisation rate
- Maintenance cost per vehicle
- Operating ratio
- Revenue per employee
What Drives Account Fluctuations
Freight/passenger volume changes driven by economic activity
Fuel price movements directly impacting operating costs
Fleet expansion or contraction changing the cost base
Route profitability shifts and network optimisation
Regulatory compliance costs (emissions, safety, driver hours)
Seasonal Considerations
Freight volumes correlate with economic activity and may show seasonal peaks (pre-holiday shipping, harvest transport). Passenger transport shows seasonal variation (summer holidays, commuter patterns). Maintenance costs may be seasonal — fleet maintenance is often scheduled during lower-demand periods.
Recommended Investigation Thresholds for Transportation & Logistics
| Account Category | Threshold % |
|---|---|
| Revenue | 5% |
| Cost of Goods Sold | 10% |
| Operating Expenses | 10% |
| Current Assets | 10% |
| Equity | 10% |
Regulatory note: Transportation entities are subject to sector-specific safety and environmental regulations. Driver working time regulations affect labour costs. Fleet emission standards may require accelerated vehicle replacement programmes.
Worked Example: Transportation & Logistics Analytical Review
A road freight company with a fleet of 250 trucks. Overall materiality €800,000, performance materiality €520,000.
Overall materiality: €800,000 | Performance materiality: €520,000 | Threshold: 10%
| Account | PY | CY | Change | % |
|---|---|---|---|---|
| Freight Revenue | €45,000,000 | €48,000,000 | €3,000,000 | +6.7% |
| Fuel Costs FLAG | €12,800,000 | €14,500,000 | €1,700,000 | +13.3% |
| Driver Costs | €14,000,000 | €15,200,000 | €1,200,000 | +8.6% |
| Maintenance & Repairs FLAG | €3,900,000 | €4,800,000 | €900,000 | +23.1% |
| Depreciation — Fleet | €4,800,000 | €5,200,000 | €400,000 | +8.3% |
| Fleet Assets FLAG | €28,000,000 | €32,000,000 | €4,000,000 | +14.3% |
| Lease Liabilities FLAG | €7,200,000 | €8,500,000 | €1,300,000 | +18.1% |