An analytical procedure involves assessing the viability of financial information to identify any inconsistencies and unexpected relationships. The analytical procedure is critical to the audit process as it gives understanding into the organisation and its environment. The ISA 520 Analytical Procedures standard states the definition and purpose of analytical procedures.
The analytical procedure includes comparing:
- Current and previous year’s figures.
- Current and budgeted or forecasted figures.
- Organisational and industry average figures.
For the purpose of planning the analytical procedure helps in giving understanding into the performance of the organisation over the year and any significant changes to the business such as Sales figure rising by 50% in comparison to last year. In addition, any deviation of previous year figures, budgets or the auditor’s knowledge that indicates any misstatement has to be investigated during the final audit process.