12.7 Analytical reviews procedures- nature, objectives, timing and extent of support evidence

Analytical review procedures are used by auditors to evaluate financial information by analyzing relationships and trends among financial data. These procedures involve the comparison of current financial information with historical data, budgets, forecasts, industry benchmarks, or other relevant data. The nature, objectives, timing, and extent of supporting evidence for analytical review procedures can vary depending on the specific audit engagement.

1. Nature of Analytical Review Procedures:
   • Analyzing relationships: Auditors assess the relationships between different financial items or ratios to identify any significant fluctuations or anomalies.
   • Comparing to expectations: Auditors compare the current financial information to expectations, such as budgeted amounts or industry norms, to identify variations that may require further investigation.
   • Trend analysis: Auditors analyze the trend of financial data over multiple periods to identify unusual patterns or changes.
   • Ratio analysis: Auditors calculate and compare financial ratios to assess the financial health and performance of the entity.
2. Objectives of Analytical Review Procedures:
   • Detecting potential misstatements: Analytical review procedures help auditors identify inconsistencies, errors, or potential misstatements in the financial information.
   • Assessing reasonableness: Auditors evaluate whether the financial information is reasonable based on historical trends, industry benchmarks, or other relevant benchmarks.
   • Identifying risks: Analytical review procedures can highlight areas of heightened risk or potential fraud, prompting auditors to conduct more detailed testing in those areas.
   • Providing overall assurance: Analytical review procedures contribute to the overall evaluation of the financial statements and provide additional evidence to support the auditor’s opinion.
3. Timing of Analytical Review Procedures:
   • Preliminary analytical review: Auditors may perform preliminary analytical review procedures during the planning phase of the audit to identify areas of potential risk or focus.
   • Interim analytical review: Auditors may conduct analytical review procedures at interim dates to assess the reasonableness of financial information and identify any significant fluctuations or issues.
   • Final analytical review: Auditors perform a final analytical review near the completion of the audit to assess the overall reasonableness of financial information and ensure consistency with expectations.
4. Extent of Supporting Evidence:
   • The extent of supporting evidence for analytical review procedures can vary depending on the assessed risks, materiality, and the reliability of the data used.
   • Auditors may obtain supporting evidence from multiple sources, such as internal financial records, industry data, market research, or discussions with management.
   • Supporting evidence can include detailed analysis, calculations, documentation of expectations, or corroborative information obtained from other audit procedures.