The decision about which procedure or procedures to use to achieve a
particular audit objective is based on the auditor's judgment on the expected
effectiveness and efficiency of the available procedures.
The auditor considers the level of assurance, if any, he wants from
substantive testing for a particular audit objective and decides, among other
things, which procedure, or combination of procedures, can provide that level
of assurance. For some assertions, analytical procedures are effective in
providing the appropriate level of assurance. For other assertions, however,
analytical procedures may not be as effective or efficient as tests of details in
providing the desired level of assurance.
Analytical Procedures in Planning (Developing Expectations) the Audit
.06 The purpose of applying analytical procedures in planning the audit is to assist in
planning the nature, timing, and extent of auditing procedures that will be used to obtain
audit evidence for specific account balances or classes of transactions.
To accomplish this,
the analytical procedures used in planning the audit should focus on (
) enhancing the
auditor's understanding of the client's business and the transactions and events that have
occurred since the last audit date, and (
) identifying areas that may represent specific
risks relevant to the audit. Thus, the objective of the procedures is to identify such things as
the existence of unusual transactions and events, and amounts, ratios and trends that
might indicate matters that have financial statement and audit planning ramifications.
[Revised, March, 2006, to reflect conforming changes necessary due to the issuance of
Statement on Auditing Standards No. 105.]
Analytical procedures used in planning the audit generally use data aggregated at a
high level. Furthermore, the sophistication, extent and timing of the procedures, which are
based on the auditor's judgment, may vary widely depending on the size and complexity of
the client. For some entities, the procedures may consist of reviewing changes in account
balances from the prior to the current year using the general ledger or the auditor's
preliminary or unadjusted working trial balance. In contrast, for other entities, the
procedures might involve an extensive analysis of quarterly financial statements. In both
cases, the analytical procedures, combined with the auditor's knowledge of the business,
serve as a basis for additional inquiries and effective planning.