Analytical procedures consist of evaluating financial information by studying financial and nonfinancial data and looking for plausible or implausible relationships. The procedures can range from making simple comparisons to using complex models involving many relationships and elements of data. They can involve time-series comparisons of recorded amounts and ratios developed from recorded amounts, and they always include comparison to expectations developed by the auditors.
Required:
A) Describe the broad purposes of analytical procedures.
B) Identify the sources of information from which an auditor develops
expectations.
A) Analytical procedures are used for these broad purposes:
i. To assist the auditor in planning the nature, timing, and extent of other auditing procedures.
ii. As a substantive test to obtain evidence about particular assertions related to account balances or classes of transactions.
iii. As an overall review of the financial information in the final review stage of the audit.
B) An auditor's expectations are developed from the following sources of information:
i. Financial information for comparable prior periods giving consideration to known changes.
ii. Anticipated results-for example, budgets, forecasts, and extrapolations.
iii. Relationships among elements of financial information within the period.
iv. Information regarding the industry in which the client operates.
v. Relationships of financial information with relevant nonfinancial information.
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