Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data

Auditing P 7-37

Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. They range from simple comparisons to the use of complex models involving many relationships and elements of data. They involve comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by the auditors.

a. Describe the broad purposes of analytical procedures.
b. When are analytical procedures required during an audit Explain why auditors use analytical procedures extensively in all parts of the audit.
c. Describe the factors that influence the extent to which an auditor will use the results of analytical procedures to reduce detailed tests in meeting audit objectives.


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Analytical procedures are an important part of the audit process and consist of the evaluation of financial information

Auditing P 8-31 Analytical procedures are an important part of the audit process and consist of the evaluation of financial information by the study of plausible relationships among financial and nonfinancial data. Analytical procedures may be done during planning, as a substantive test, or as a part of the overall review of an audit.

The following are various statements regarding the use of analytical procedures:
1. Not required during this stage.
2. Should focus on enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit date.
3. Should focus on identifying areas that may represent specific risks relevant to the audit.
4. Do not result in detection of misstatements.
5. Designed to obtain evidential matter about particular assertions related to account balances or classes of transactions.
6. Generally use data aggregated at a lower level than the other stages.
7. Should include reading the financial statements and notes to consider the adequacy of evidence gathered.
8. Involve reconciliation of confirmation replies with recorded book amounts.
9. Use the preliminary or unadjusted working trial balance as a source of data.
10. Expected to result in a reduced level of detection risk.

Required
For each of the 10 statements, select the stage of the audit for which the statement is most accurate using the following responses:
1. Planning the audit
2. Substantive testing
3. Overall review
4. Statement is not correct concerning analytical procedures.*


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