What is Analytical Procedures?
Analytical procedures are audit techniques that evaluate financial information by studying plausible relationships among financial and non-financial data. They are used at three points: risk assessment (planning), substantive testing during the audit, and the overall review at the end. Common techniques include trend analysis, ratio analysis, reasonableness tests, and regression analysis.
How It Works
- Develop an expectation based on prior years, budgets, industry data, or non-financial indicators.
- Compare the recorded amount to the expectation.
- Quantify the precision and the threshold for further investigation.
- Investigate differences exceeding the threshold by inquiry and corroboration.
- Document the expectation, comparison, and conclusion.
Saudi Context
Saudi auditors (SOCPA-licensed firms including Big Four affiliates) apply ISA 520 analytical procedures throughout audits of Tadawul-listed clients. Common Saudi-specific analytics include comparing payroll movement to GOSI subscription changes, VAT output to declared revenue, fuel costs to vehicle count, and rent expense to leased area. Anomalies trigger substantive follow-up testing.
Example
An auditor expects current-year revenue to grow 8% in line with industry. The client reports 22% growth. The auditor compares revenue by month, by region, and against shipping volumes, identifies a SAR 12 million December spike that does not match logistics data, and follows up by testing a sample of December invoices for revenue cut-off issues.