Analytical procedures are required on every audit. Should the procedure be performed before or after the...

Analytical procedures are required on every audit.

Should the procedure be performed before or after the calculation of the expected result?
If the result of an analytical procedure differs significantly from the expectation, is that conclusive evidence that there is an error in the books?
If the result of an analytical procedure differing significantly from the expectation does not necessarily mean the books are in error, what does it mean?

Expert Solution

a. Analytical procedures should be performed before the calculation of expected result. This is to prevent bias in judgement by auditor in determination of threshold before the calculation of difference between expectation and recorded amount i.e. result.

b. If the result of analytical procedure differs significantly from expectation, it cannot be said that there is an error in the books with certainty though it may be one of the reasons for differences. The likelihood although increases when the determination of expectations have been made precise by the auditor.

c. This would also require further investigation by the auditor. This considers substantiating adequacy of evidence gathered in response to differences and unusual or unexpected balances or relationships that were not previously identified. As per the standards, the possible reasons for significant differences can include significant unusual transactions or entries including those in year end, other causes of significant fluctuations or expected fluctuations that did not occur and change in composition of classes of transactions or accounts balances.

ekkarill92 answered 7 months ago

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