Analytical Procedures Explain ratio analysis as an analytical procedure used by auditor. Give examples of the ratios that auditor might want to compute for revenue cycle accounts
Ratio analysis is useful in highlighting account balances that are out of line or different from reasonable expectations. Ratios can be compared across time for a client, as well as compared with the industry ratios. The approach to ratio analysis is similar to what a financial analyst would perform in examining a financial statement. Auditors might want to compute ratios like:
*Gross margin analysis, including a comparison with industry averages and previous year's averages for the client
*Turnover of receivables (ratio of credit sales to average net receivables) or the number of days' sales in accounts receivable
*Average balance per customer
*Receivables as a percentage of current assets
*Aging of receivables
*Allowance for uncollectible accounts as a percentage of accounts receivable
*Bad debt expense as a percentage of net credit sales
*Sales in the last month to total sales
*Sales discounts to credit sales
*Returns and allowances as a percentage of sales
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