Para 2.1.19 — MSO (Audit)
Original Rule Text
2.1.19 Predictive analysis: This involves the creation of an expectation using not just financial data but also operating or external data, independent of the accounting system. The key word is “independent”; predictive testing can be used only where sufficient information independent of the accounting system is available. Therefore, it is also referred to as an “independent test of reasonableness”. For example, volume of imports and import duty rate may be used to predict import duty revenue. This is generally used in the execution stage. It often requires more time than simpler analytical procedures, especially since it involves collection of reliable data from outside the accounting system.
What This Means
Predictive analysis creates an expected value for a financial figure using non-accounting data — operating statistics or external information independent of the accounting system. Because it uses independent data, it is also called an 'independent test of reasonableness.' It requires more time than simpler techniques because reliable external data must be collected, but it provides strong assurance when the accounting data alone is insufficient.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Uses non-accounting data to predict expected financial figures
- 2Also called 'independent test of reasonableness'
- 3Key requirement: data must be independent of the accounting system
- 4Generally used during the execution stage
- 5More time-consuming due to external data collection
- 6Provides strong assurance through independent verification
Practical Example
To verify reported import duty revenue, the auditor obtains trade statistics showing the volume and value of cotton imports from an independent source (e.g., DGCIS data). By applying the applicable duty rate to this independent data, the auditor creates an expected duty figure. If the actual collection is significantly lower, it suggests under-assessment or evasion that needs investigation.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Why must the data be independent of the accounting system?▼
When should predictive analysis be preferred over simpler techniques?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.