Analytical procedures

Analytical procedures are the evidence used during an audit. These procedures can indicate possible problems with a client's financial records, which can be investigated more thoroughly. Analytical procedures involve comparing different sets of financial and operational information to see if historical relationships continue into the period under review. In most cases, these relationships should remain consistent over time. If not, it can imply that the client’s financial records are incorrect, possibly due to errors or fraudulent reporting activity [AccountingTools].
Analytical procedures involve comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by the auditor. The auditor develops such expectations by identifying and using plausible relationships that are reasonably expected to exist based on the auditor's understanding of the client and the industry in which the client operates. The following are examples of sources of information for developing expectations:
- financial information for the comparable prior period(s) considering known changes;
anticipated results – for example, budgets or forecasts including extrapolations from interim or annual data;
- relationships among elements of financial information within the period;
- information regarding the industry in which the client operates – for example, gross margin information;
- relationships of financial information with relevant nonfinancial information [PCAOB].

Sources:

Analytical procedures. AccountingTools. Retrieved from: https://www.accountingtools.com/articles/analytical-procedures.html

Analytical procedures. PCAOB. Retrieved from: https://pcaobus.org/oversight/standards/archived-standards/details/AU329A