Analytical Procedures in Audit: Meaning, Purpose, Types, Examples

Follow us on LinkedIn

Audit engagements include various techniques and methods to obtain audit evidence. On top of that, they also help auditors analyze and test the acquired information. However, these techniques may differ based on the type of data obtained or the objective of the test. One of these techniques includes analytical procedures. These procedures apply during various stages in the auditing process.

What are Analytical Procedures in Audit?

Auditing standards require auditors to perform analytical procedures as risk assessment procedures. This requirement comes from ISA 315. However, ISA 520 Analytical Procedures elaborates on what it entails. Analytical procedures include the evaluation of financial information by analyzing plausible relationships. These relationships consider both financial and non-financial information.

Add your business to our business directory https://harbourfronts.com/directory/ Add your business. Also check out other businesses in the directory

The primary purpose of analytical procedures in audit is to identify any inconsistent relationships. Similarly, auditors can use it to build expectations for specific amounts and check them against the actual figures. Analytical procedures apply during the risk assessment process. However, they can also be helpful during fieldwork and other stages in the auditing process.

How do Analytical Procedures work?

Analytical procedures come in various forms. As mentioned above, auditors use these procedures during the risk assessment process. It involves comparing the information with several figures. Usually, auditors start by considering any changes in current year amounts against prior periods. On top of that, auditors can also use industry averages for this purpose.

Another crucial aspect of analytical procedures is to compare the information with anticipated results. These may include various tools such as forecasts and budgets. Similarly, auditors can also develop their expectations of what figures should be. Then, they can compare that information with actual figures. While performing analytical procedures, auditors also consider non-financial information.

The primary purpose of these comparisons is to find any discrepancies in those figures. Once auditors identify the difference in those figures, they must investigate them. Usually, it entails discussing it with the management about the differences.

What are the types of Analytical Procedures?

Some of the most common types of analytical procedures include the following.

Comparisons

Comparisons are the most common form of an analytical procedure. As mentioned above, auditors use it to compare actual figures with previous periods or industry averages.

Ratio analysis

Ratio analysis is also a prominent method used during analytical procedures. It involves examining one figure relative to another. Usually, auditors also use it to compare ratios for previous periods or industry averages with current periods.

Trend analysis

Trend analysis is a common type of analytical procedure. This method involves studying the trends for previous periods and developing expectations based on them. Subsequently, auditors can compare this information with actual results as a part of analytical procedures.

Why do auditors use Analytical Procedures?

The primary objective of analytical procedures is to help auditors understand information better. Similarly, it is helpful in obtaining audit evidence. Besides these, analytical procedures can also help auditors in the following ways.

  • Help identify aspects of the client’s business that are not evident.
  • Help identify unusual elements in the financial statements or accounts.
  • Provide a base for assessing the risks of material misstatements.
  • Assist auditors in identifying instances of errors and fraud in the financial statements.

Conclusion

Analytical procedures are a crucial part of the audit process. These involve comparing information, both financial and non-financial. Primarily, the purpose of these procedures is to study plausible relationships between that information. There are many methods by which auditors can apply these procedures, as stated above.

Further questions

What's your question? Ask it in the discussion forum

Have an answer to the questions below? Post it here or in the forum

LATEST NEWSGolconda Gold Ltd. Releases Financial and Operating Results for 2023
Golconda Gold Ltd. Releases Financial and Operating Results for 2023

TORONTO, April 29, 2024 (GLOBE NEWSWIRE) — Golconda Gold Ltd. (“Golconda Gold” or the “Company”) (TSX-V: GG; OTCQB: GGGOF) is pleased to announce the release of its financial results for the year ended December 31, 2023. All amounts are in United States dollars unless otherwise…

Stay up-to-date with the latest news - click here
LATEST NEWSFirst Nation Takes Fight With Oil-Sands Giant to Shareholders
First Nation Takes Fight With Oil-Sands Giant to Shareholders

An indigenous community in Alberta’s oil-sands region submitted a proposal to Imperial Oil Ltd. shareholders that would require the company to disclose the financial effect of the energy transition.

Stay up-to-date with the latest news - click here
LATEST NEWSSHARC Energy Announces 2023 Year End Financial Results
SHARC Energy Announces 2023 Year End Financial Results
Stay up-to-date with the latest news - click here
LATEST NEWSCohen & Steers Infrastructure Fund, Inc. (UTF) Notification of Sources of Distribution Under Section 19(a)
Cohen & Steers Infrastructure Fund, Inc. (UTF) Notification of Sources of Distribution Under Section 19(a)
Stay up-to-date with the latest news - click here
LATEST NEWSCohen & Steers Total Return Realty Fund, Inc. (RFI) Notification of Sources of Distribution Under Section 19(a)
Cohen & Steers Total Return Realty Fund, Inc. (RFI) Notification of Sources of Distribution Under Section 19(a)
Stay up-to-date with the latest news - click here

Leave a Reply