Financial Data
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Financial Ratio Analysis Guide for European Auditors — free PDF
ISA 520 & ISA 570 practical workbook: all formulas with visual explanations, industry benchmark reference tables from BACH for 15 industries, ratio interpretation guide, and template narrative paragraphs for audit working papers.
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ISA 520.5 — Design and perform analytical procedures near the end of the audit that assist in forming an overall conclusion.
ISA 520.A1 — Analytical procedures may include ratios such as gross margin percentages and ratio of sales to accounts receivable.
ISA 570.A3 — Negative working capital, adverse key financial ratios, operating losses, and other indicators may cast doubt on going concern.
Financial Ratio Analysis in Ireland — ISA (Ireland) 520 / ISA (Ireland) 570
Financial ratio analysis for Irish audits is governed by ISA (Ireland) 520 and ISA (Ireland) 570, issued by the Irish Auditing and Accounting Supervisory Authority (IAASA) based on international standards with Irish-specific amendments. IAASA serves the dual role of standard-setter and quality inspector for audits of public interest entities in Ireland. Ireland's position as a significant hub for multinational corporate structures, funds, and financial services entities creates distinctive ratio analysis challenges. Irish auditors must contend with entities whose financial ratios may be significantly influenced by transfer pricing arrangements, intercompany financing structures, and the impact of intellectual property-heavy business models on profitability metrics. The Irish financial reporting framework encompasses IFRS for listed entities, FRS 102 for most other entities, and specialised frameworks for financial institutions and funds, each affecting ratio computation differently.
Regulatory Context — IAASA
IAASA's audit quality inspection reports have examined the application of analytical procedures across firms auditing public interest entities in Ireland. Key findings include insufficient precision in expectations for substantive analytical procedures, inadequate consideration of the specific characteristics of multinational entities headquartered in Ireland when setting ratio benchmarks, and insufficient investigation of ratio movements attributable to group restructuring or transfer pricing changes. IAASA has emphasised that auditors of Irish entities must understand the entity's business model and its effect on financial ratios before forming expectations. The Supervisory Committee of IAASA has also highlighted going concern as an area requiring enhanced auditor scrutiny, particularly for entities dependent on continued group support or facing regulatory changes that could affect their business model. Irish auditing standards include specific provisions reflecting Irish company law requirements under the Companies Act 2014.
Practical Guidance for Ireland
Irish auditors can access benchmark data from the Central Statistics Office (CSO), which publishes business financial statistics by sector. Vision-net and CRO (Companies Registration Office) filings provide company-level financial data. For multinational entities, auditors should consider that Irish-entity ratios may not be directly comparable to standalone domestic businesses due to the influence of transfer pricing, intellectual property licensing arrangements, and intercompany financing. The Central Bank of Ireland publishes data relevant to financial services entities, including credit institutions and insurance undertakings. When computing ratios for FRS 102 reporters, auditors should note differences from IFRS in areas such as financial instruments measurement, investment property treatment, and government grant accounting that may affect ratio comparability. The Irish economy's openness and dependence on foreign direct investment mean that exchange rate movements and international trade conditions significantly influence financial ratios for many Irish entities.
Audit Expectations
IAASA expects Irish auditors to apply a structured methodology to ratio analysis that reflects the specific characteristics of each engagement. For multinational entities, this means considering the impact of transfer pricing and intercompany transactions on profitability and efficiency ratios. For domestic entities, IAASA expects auditors to use CSO and sector-specific benchmark data to inform expectations. Common inspection findings include the use of generic ratio templates without entity-specific tailoring, failure to investigate material ratio movements arising from business restructuring or accounting policy changes, and inadequate documentation of the analytical procedures performed. IAASA has noted that for going concern assessments under ISA (Ireland) 570, auditors should evaluate a comprehensive set of financial indicators and should not rely solely on management representations regarding the entity's ability to continue as a going concern.
Ireland-Specific Considerations
Ireland's insolvency framework under the Companies Act 2014 provides several mechanisms relevant to going concern assessment. Examinership under Part 10 of the Companies Act 2014 offers court protection for entities that have a reasonable prospect of survival as a going concern, during which an examiner formulates proposals for a compromise or scheme of arrangement. The reckless trading provisions under Section 610 impose personal liability on directors who were knowingly party to carrying on the business of a company in a reckless manner. The inability to pay debts test under Section 509 considers both the cash flow and balance sheet positions. These provisions make liquidity ratios, solvency ratios, and net asset position ratios directly relevant to the auditor's going concern assessment. The Small Company Administrative Rescue Process (SCARP), introduced by the Companies (Rescue Process for Small and Micro Companies) Act 2021, provides a streamlined rescue mechanism for smaller entities, potentially supporting the going concern basis where financial ratios indicate distress but recovery is feasible. Irish auditors should also consider the impact of Revenue Commissioners assessments and potential tax liabilities on ratio analysis, particularly for entities involved in cross-border structuring.
Common Inspection Findings
Ratio expectations for multinational entities were benchmarked against domestic industry norms without adjusting for the impact of transfer pricing and intercompany transactions.
The impact of group restructuring on year-on-year ratio comparisons was not considered when investigating significant ratio movements.
Going concern ratio analysis did not reference the specific insolvency tests under the Companies Act 2014, including the inability to pay debts test.
External benchmark data from the CSO was not utilised despite being available for the entity's sector classification.
Documentation of substantive analytical procedures did not clearly distinguish between the expectation development phase and the variance investigation phase.
For entities dependent on continued group support, ratio analysis did not adequately assess the parent entity's ability and willingness to provide ongoing funding.