Your Ask Joey ™ Answer

How and when to perform analytical procedures in an audit?

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.


Back To All Questions

You might also be interested in...

  • Three Reasons to Become an Accountant

    If you’re someone who is intrigued by numbers, enjoys problem-solving and wants to help others, then accounting might be the perfect career for you. While some people may be put off by its unalluring reputation, accounting is an excellent career choice that has many benefits. In this article, we look at three of the reasons...

  • Qualified Retirement Planning: Tax Advantages & Disadvantages

    Home Advantages and Disadvantages of Tax-Free and Deferred-Tax Retirement Plans What are “qualified retirement plans” and how can they be effective for tax planning? Well, there are plenty of tax savings advantages to individuals contributing to tax-free retirement accounts, as well as tax-deferred retirement accounts. However, this doesn’t necessarily mean that there are no disadvantages...

  • CPA Evolution Survival Guide

    Download Your eBook by selecting the download icon in the top right-hand corner