At which phase of Audit Analytical procedure is more benificial?

Analytical procedures mean evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.

Timing and purpose of analytical procedures

Analytical procedures may be performed at any of all three stages in the audit process: the planning phase, the testing phase and the completion phase.

During the planning phase, analytical procedures can be used as risk assessment procedures. They help auditors identify significant matters requiring special consideration later in the audit engagement, such as to:

• Understand the client’s industry and business
• Assess going concern
• Indicate possible misstatements
• Reduce detailed tests.

During the testing phase, analytical procedures can be used as substantive procedures in collecting appropriate audit evidence. They can be performed together with other substantive procedures (substantive tests of transactions and tests of details of balances) and they help to:

• Indicate possible misstatements
• Reduce detailed tests.

During the completion phase, analytical procedures can be used as part of an overall review of the financial statements for the auditors to reach conclusions about the fair presentation of the financial statements. In accordance with International Standard on Auditing ISA-520, the auditor shall design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity. The analytical procedures help the auditors to take a final review of the audited financial statements objectively and help to:

• Assess going concern
• Indicate possible misstatements.

Analytical procedures is one method of increasing auditor efficiency. Analytical procedures consist of evaluations of financial information made by an auditor of plausible and expected relationships among both financial and non-financial data. They range from simple comparisons (e.g., the current year with the preceding year) to the use of complex models involving many relationships and elements of data (e.g., regression analysis).

1.  Analytical procedures used in planning the audit might include the following:

2.  Account balance comparison. Compare unadjusted trial balance amounts with adjusted tried balance amounts of the prior year.

 3. Computation of significant ratios. Compare current year ratios to current industry ratios and prior year computing ratios.

4.Computation of ratios using nonfinancial and financial data. E.g., sales per square foot of sales space.

5. Regression analysis.

The application of analytical procedures in the final review of the audit is one of the last audit tests. Those procedures assist the auditor in assessing conclusions reached concerning certain account balances and in evaluating the overall financial statement presentation.

 Procedures such as the following may be applied: 

Comparisons with similar financial data of the prior year or of the client’s industry.

1.       Ratio analysis.

2.       Trend analysis.

3.       Development of common-size financial statements.  

The objective of analytical procedures in the final phase of the audit is similar to that in the planning phase attention directing. Unfavorable results will require the auditor to investigate the reasons for those results.

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At All Phases of Audit.

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