The term "analytical procedures" refers to financial data evaluations based on the examination of plausible links between financial and non-financial data. Analytical procedures also include any necessary study of discovered variations or associations that are inconsistent with other relevant information or that deviate significantly from predicted values. Analytical procedures may entail making comparisons between the entity's financial data and, for example:
§
Data
from previous times that can be compared.
§
Expected
results of the entity, such as budgets or projections, or auditor expectations,
such as a depreciation estimate.
§
Similar
industry data, such as a comparison of the entity's
sales-to-accounts-receivable ratio to industry averages or other
comparable-sized companies in the same industry.
The
auditor's goals are to:
(a) obtain relevant and reliable audit
evidence when using substantive analytical procedures; and
(b) design and perform analytical
procedures near the end of the audit to help the auditor form an overall
conclusion about whether the financial statements are consistent with the
auditor's understanding of the entity.
If
analytical procedures carried out in accordance with this ISA (UK) identify
fluctuations or relationships that are inconsistent with other relevant
information or that differ by a significant amount from expected values, the
auditor shall investigate such differences by:
(a) questioning management and obtaining
appropriate audit evidence relevant to management's responses; and
(b) carrying out other audit procedures
as necessary in the circumstances.
At
the assertion level, the auditor's substantive processes may include tests of
details, substantive analytical procedures, or a mix of the two. The auditor's
judgment regarding the predicted efficacy and efficiency of the various audit
procedures to reduce audit risk at the assertion level to an acceptable level
is used to choose which audit procedures to execute, including whether to
utilize substantive analytical procedures.
The
auditor may question management on the availability and reliability of data
needed to perform significant analytical procedures, as well as the outcomes of
any such procedures performed by the entity. Using analytical data prepared by
management may be effective if the auditor is convinced that the data was appropriately prepared.
Practice:
The
conclusions made from the outcomes of analytical procedures devised and carried
out are meant to back up the conclusions reached during the audit of particular
financial statement components or elements. This aids the auditor in reaching
plausible inferences on which to base his or her findings.
Reference: https://bit.ly/3H3YneV
