Analytical procedures

Analytical procedures


Analytical procedures are fundamental to the auditing process and are used at the planning, performance and review stage of the audit. They are defined in ISA 520 Analytical Procedures as:

"The evaluation of financial information through analysis of plausible relationships among both financial and non-financial data."

Methods and uses

Traditionally they incorporate the comparison of:

  • Current and prior year figures;
  • Current and budgeted/forecast figures; and
  • Client and industry average figures.

At the planning stage analytical procedures are useful for helping to gain an understanding of the client's performance over the last twelve months and to identify any significant changes to the business, for example: the disposal of significant land and buildings. In addition, analytical procedures are also used to identify peculiar deviations (from either prior year figures, budget or the auditor's knowledge) that could indicate misstatement in the reported figures. These must then be investigated during final audit procedures.

For example; when conducting an analytical review of a current audit client you notice that turnover had increased by 20% in comparison to last year but delivery costs have increased by 50%. Normally you would expect costs to rise in line with changes in activity but clearly delivery costs have increased at a much higher rate. Plausible reasons for this variance include:

  • Increasing sales by attracting customers from more distant geographical locations;
  • Reducing delivery waiting times by making more frequent deliveries; or
  • There is an error in either sales or delivery costs.

The reason for the variance will be investigated during the audit until a satisfactory explanation is obtained.

Created at 10/3/2012 3:07 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 1/18/2013 3:54 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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