Analytical Procedures - AICPA

1 Analytical Procedures633AU-C Section 520 Analytical ProceduresSource: SAS No. for audits of financial statements for periods ending on orafter December 15, of This section addresses the auditor's use of Analytical Procedures assubstantive Procedures (substantive Analytical Procedures ). It also addressesthe auditor's responsibility to perform Analytical Procedures near the end ofthe audit that assist the auditor when forming an overall conclusion on thefinancial statements. Section 315,Understanding the Entity and Its Environ-ment and Assessing the Risks of Material Misstatement, addresses the use ofanalytical Procedures as risk assessment Procedures (which may be referredto as Analytical Procedures used to plan the audit).

2 1 Section 330,PerformingAudit Procedures in Response to Assessed Risks and Evaluating the Audit Ev-idence Obtained, addresses the nature, timing, and extent of audit proceduresin response to assessed risks; these audit Procedures may include substantiveanalytical section is effective for audits of financial statements for periodsending on or after December 15, objectives of the auditor are relevant and reliable audit evidence when using substan-tive Analytical Procedures and perform Analytical Procedures near the end of the au-dit that assist the auditor when forming an overall conclusionabout whether the financial statements are consistent with theauditor's understanding of the entity.

3 (Ref: par..A1) the purposes of generally accepted auditing standards, the follow-ing term has the meaning attributed as follows: Analytical of financial informationthrough analysis of plausible relationships among both finan-cial and nonfinancial data. Analytical Procedures also encompass1 Paragraph .06bof section 315,Understanding the Entity and Its Environment and Assessingthe Risks of Material .06 and .18 of section 330,Performing Audit Procedures in Response to AssessedRisks and Evaluating the Audit Evidence Obtained. 2021, AICPAAU-C Evidencesuch investigation, as is necessary, of identified fluctuations or re-lationships that are inconsistent with other relevant informationor that differ from expected values by a significant amount.

4 (Ref:par..A2 .A6)RequirementsSubstantive Analytical designing and performing Analytical Procedures , either alone orin combination with tests of details, as substantive Procedures in accordancewith section 330, the auditor should3(Ref: par..A7 .A9) the suitability of particular substantive Analytical pro-cedures for given assertions, taking into account the assessedrisks of material misstatement and tests of details, if any, for theseassertions; (Ref: par..A10 .A16) the reliability of data from which the auditor's expec-tation of recorded amounts or ratios is developed, taking into ac-count the source, comparability, and nature and relevance of infor-mation available and controls over preparation; (Ref: par.)

5 A17 .A20) an expectation of recorded amounts or ratios and eval-uate whether the expectation is sufficiently precise (taking intoaccount whether substantive Analytical Procedures are to be per-formed alone or in combination with tests of details) to identifya misstatement that, individually or when aggregated with othermisstatements, may cause the financial statements to be materi-ally misstated; and (Ref: par..A21 .A23) the amount of any difference of recorded amounts fromexpected values that is acceptable without further investigationas required by paragraph .07 and compare the recorded amounts,or ratios developed from recorded amounts, with the expectations.

6 (Ref: par..A24) Analytical Procedures That Assist When Forming an auditor should design and perform Analytical Procedures near theend of the audit that assist the auditor when forming an overall conclusionabout whether the financial statements are consistent with the auditor's un-derstanding of the entity. (Ref: par..A25 .A27)Investigating Results of Analytical Analytical Procedures performed in accordance with this sectionidentify fluctuations or relationships that are inconsistent with other relevantinformation or that differ from expected values by a significant amount, theauditor should investigate such differences of management and obtaining appropriate audit evi-dence relevant to management's responses and3 Paragraph.

7 18 of section 2021, AICPAA nalytical other audit Procedures as necessary in the circum-stances. (Ref: par..A28 .A29)Documentation (Ref: par..A30).08 When substantive Analytical Procedures have been performed, the au-ditor should include in the audit documentation the expectation referred to in paragraph .05cand the factors con-sidered in its development when that expectation or those factorsare not otherwise readily determinable from the audit of the comparison referred to in paragraph .05dof therecorded amounts, or ratios developed from recorded amounts,with the additional auditing Procedures performed in accordance withparagraph .07 relating to the investigation of fluctuations or re-lationships that are inconsistent with other relevant informationor that differ from expected values by a significant amount andthe results of such additional proceduresApplication and Other Explanatory MaterialObjectives (Ref: par.)

8 03b).A1 Analytical Procedures performed near the end of the audit are in-tended to corroborate audit evidence obtained during the audit of the financialstatements to assist the auditor in drawing reasonable conclusions on which tobase the auditor's (Ref: par..04).A2 Analytical Procedures include the consideration of comparisons of theentity's financial information with, for example comparable information for prior periods. anticipated results of the entity, such as budgets or forecasts, orexpectations of the auditor, such as an estimation of depreciation. similar industry information, such as a comparison of the entity'sratio of sales to accounts receivable and gross margin percentageswith industry averages or other entities of comparable size in thesame Procedures also include consideration of relationships, forexample among elements of financial information, such as gross marginpercentages, that would be expected to conform to a predictablepattern based on recent history of the entity and industry.

9 Between financial information and relevant nonfinancial informa-tion, such as payroll costs to number of .08 .12 and .A8 of section 230,Audit Documentation. 2021, AICPAAU-C methods may be used to perform Analytical Procedures . Thesemethods range from performing simple comparisons to performing complexanalyses using advanced statistical techniques. Analytical Procedures may beapplied to consolidated financial statements, components, and individual ele-ments of a type of Analytical procedure involving the auditor's ex-ercise of professional judgment to review accounting data to identify significantor unusual items to test. This type of Analytical procedure is described furtherin section 500A,Audit basic premise underlying the application of Analytical Procedures isthat plausible relationships among data may reasonably be expected to existand continue in the absence of known conditions to the contrary.

10 The reasonsthat make relationships plausible are an important consideration because datasometimes appears to be related when it is not, which may lead the auditor toerroneous conclusions. In addition, the presence of an unexpected relationshipmay provide important evidence when appropriately Analytical Procedures (Ref: par..05).A7 The auditor's substantive Procedures to address the assessed risk ofmaterial misstatement for relevant assertions may be tests of details, substan-tive Analytical Procedures , or a combination of both. The decision about whichaudit Procedures to perform, including whether to use substantive analyticalprocedures, is based on the auditor's professional judgment about the expectedeffectiveness and efficiency of the available audit Procedures to reduce the as-sessed risk of material misstatement to an acceptably low expected effectiveness and efficiency of a substantive analyticalprocedure in addressing risks of material misstatement depends on, amongother things, (a) the nature of the assertion, (b) the plausibility and predictabil-ity of the relationship, (c) the availability and reliability of the data used todevelop the expectation, and (d)