Analytical procedures consist of the evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial information.
Analytical procedure will be required during the planning phase and the final review of the overall audit engagement. Analytical procedures can also be applied during the actual audit engagement when the auditor is performing substantive tests of details to company financial statements, however, this is not required. Analytical procedures that are used during the planning phase of an audit will enhance the auditors understanding of the client’s operation as well as “flag” potential risks of material misstatements.
The auditor should develop certain expectations regarding potential relationships for these tests to the financial statements as well as expected and unexpected relationships. If the auditor has determined that there is an unusual relationship from the analytical procedure test, it might increase the likelihood that there are risks of material misstatements involved in the financial statements.
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