 Show It is mandatory that the auditor should perform risk assessment for the identification and assessment of risks of material misstatement at the financial statement and assertion level, and the risk assessment procedures should include analytical procedures (ISA 315). It is also mandatory that the auditor should perform analytical procedures near the end of the audit that assess whether the financial statements are consistent with the auditor’s understanding of the entity (ISA 520). Analytical procedures are also commonly used in non-audit and assurance engagements, such as reviews of prospective financial information, and non-audit reviews of historical financial information. While the use of analytical procedures in such engagements is not covered in the ISAs, the principals regarding their use are relevant. Definition of analytical procedures Analytical procedures consist of ‘evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. They also encompass ‘such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount’ (ISA 520). A basic premise underlying the application of analytical procedures is that plausible relationships among data may reasonably be expected to exist and continue in the absence of conditions to the contrary. Purposes of analytical procedures Analytical procedures are used throughout the audit process and are conducted for three primary purposes: 1. Preliminary analytical review – risk assessment (required by ISA 315) Preliminary analytical reviews are performed to obtain an understanding of the business and its environment (e.g. financial performance relative to prior years and relevant industry and comparison groups), to help assess the risk of material misstatement in order to determine the nature, timing and extent of audit procedures, i.e. to help the auditor develop the audit strategy and programme. 2. Substantive analytical procedures Analytical procedures are used as substantive procedures when the auditor considers that the use of analytical procedures can be more effective or efficient than tests of details in reducing the risk of material misstatements at the assertion level to an acceptably low level. What is the purpose for using analytical procedures?Analytical procedures are used for the following purposes: To assist the auditor in planning the nature, timing, and extent of other auditing procedures. As a substantive test to obtain evidential matter about particular assertions related to account balances or classes of transactions.
What is a analytical procedure?Analytical procedures are audit procedures used to help conduct a more economic, efficient and effective audit. They consist of studying plausible relationships between both financial and non-financial data, whether within the same period and entity and/or from different periods and entities.
What are the 5 types of analytical procedures?7 examples of analytical procedure methods. Efficiency ratio analysis. ... . Industry comparison ratio analysis. ... . Other ratio analysis methods. ... . Revenue and cost trend analysis. ... . Investment trend analysis. ... . Reasonableness test. ... . Regression analysis.. What are the three categories of analytical procedures?Analytical procedures are performed at three stages of audit, namely planning, execution and completion, serving three primary purposes: risk assessment, obtain assurance and financial analytical review.
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