Analytical procedures in auditing

Why analytical procedures are important in audit? What should we do?

What is analytical procedures?

An evaluation process of financial information
Involves analysis of plausible relationship between financial and non-financial data

Auditors’ objectives in performing analytical procedure

To obtain audit evidence to justify the audit assertions.
To perform analytical procedures at year end audit to assist in forming audit conclusion

4 Step on Analytical Procedures

i) Determine audit expectation based on the financial and non- financial data

ii) Define the materiality of the audit engagement

iii) Develop an expectation of recorded amounts

iv) Investigate the results of analytical procedures

Types of analytical Procedures

i) Trend analysis

Represent Evaluation of movement in amounts over a certain period such as:
Analyse of sales and purchase monthly movement
Analyse significant movement in expenses as compare to prior year

ii) Ratio analysis

Gaining insights of the company by comparing its financial and non-financial data
Inventory turnover Current ratio Quick ratio
Receivables turnover ratio

iii) Reasonable testing

Involve comparison of auditor's expectation against the actual result using financial and non-financial data such as:
Depreciation reasonable test Payroll contribution reasonable test

Investigate the results of analytical procedures

i) Inquire management and gather audit evidence to justify to management’s responses

ii) Performing other audit procedures as necessary in the circumstances

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