Analytical procedures in audit

What is compared

• Current-period figures against prior periods
• Actual data against budgets, where the company budgets
• Ratios between related line items — revenue and cost of sales, inventory and turnover
• Data of different divisions or business lines against each other
• Financial figures against non-financial ones — revenue and shipment volumes, payroll and headcount

How it works in practice

Example: revenue grew by a third, while payroll and purchase volumes stayed flat. Such a combination does not necessarily mean an error, but it needs an explanation — and that is exactly the area where in-depth testing is directed.

The opposite situation is just as telling: in a live business, figures that do not change at all from year to year often point to data being carried forward mechanically instead of real bookkeeping.

Limitation of the method

Analytical procedures show the direction, but on their own they prove neither an error nor its absence. A deviation that has been identified is always tested substantively — with documents and confirmations.

Where they are used (ISA 520)

• at the planning stage — to assess risks;
• as substantive procedures — comparison with an expectation: recalculation of payroll, interest on loans, depreciation;
• at completion — an overall check that the financial statements are reasonable.

Example

Headcount is 50 people, the average accrued salary per timesheets is UZS 6 million, 12 months: the expected payroll is UZS 3.6 billion. The books show 4.1 billion. The 500 million deviation exceeds the threshold, so the auditor requests an explanation and tests the accruals in detail.

Legal basis

The auditor chooses the forms and methods of testing independently (Article 28 of Law No. ZRU-677 “On Auditing Activity”) within the framework of International Standards on Auditing (Article 9).