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Analytical Procedures- Master Answer Old Course -- (P16M
QNO Bhaskar CNO - SA520.020 /M17M/M18R/N18R/SM17/N19R/SM20/N21R/SM21)
520.01
New Course -- (SM25)
Define Analytical Procedures.
OR
What do you mean by Analytical procedures? How such procedures are helpful in auditing?
OR
Routine checks cannot be depended upon to disclose all the mistakes or manipulation that may exist in
accounts, certain other procedures also have to be applied like trend and ratio analysis. Analyse and Explain
stating clearly the meaning of analytical procedures.
Answer ➢ Definition
The term “analytical procedures” means evaluation of financial information through analysis of plausible
relationships among both financial and non-financial data. Analytical procedures 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.

Thus, analytical procedures include the consideration of comparisons of the entity’s financial
information with as well as consideration of relationships.
➢ Examples of Comparison of Financial Data

Text Examples
Analytical procedures include the consideration of comparisons of
the entity’s financial information with, for example:
• Comparable information for prior periods.
(Trend Analysis)
• Anticipated results of the entity, such as budgets or
forecasts, or expectations of the auditor, such as an (Comparative Analysis)
estimation of depreciation.

• Auditor’s own estimate (Predictive Analysis)

Similar industry information, such as a comparison of the entity’s
ratio of sales to accounts receivable with industry averages or (Intern Firm Analysis)
with other entities of comparable size in the same industry.
➢ 4 types of Comparisons as explained above
Thus, we can say that Analytical Procedures may be segregated into these major types as comparison of
client and industry data, comparison of client data with similar prior period data, comparison of client
data with client-determined expected results, comparison of client data with auditor-determined
expected results and comparison of client data with expected results, using non-financial data.

➢ Simple Comparisons to Complex Analysis
Various methods may be used to perform analytical procedures. These methods range from performing
simple comparisons to performing complex analyses using advanced statistical techniques. (Correlation
& Regression) Analytical procedures may be applied to consolidated financial statements, components
and individual elements of information.

➢ Routine checks V/s Analytical Procedures
Since routine checks cannot be depended upon to disclose all the mistakes or manipulation that may
exist in accounts, certain other procedures also have to be applied like trend and ratio analysis in
addition to reasonable tests. These collectively are known as overall tests. With the passage of tests,
analytical procedures have acquired lot of significance as substantive audit procedure. SA-520 on
Analytical Procedures discusses the application of analytical procedures during an audit.

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