Accounting and Finance Foundations

Unit 13

Accounting and Finance Foundations Unit 13: Auditing 998

Auditing

Chapter 30

Student Guide

Lesson 30.4 The Audit Process—

Conducting Analytical Procedures

Stage 3: Conducting Analytical Procedures

After planning the audit and testing the company’s internal controls, the auditor digs into his/her evidence

and audit samples to ensure that the data are accurate, complete, and not materially misstated. S/He ana-

lyzes a wide range of data, including—but not limited to—the following:

n    Sales

n    Non-collectible accounts

n    Expenses

n    Account balances

n    Similar prior-period data

n    Industry data

n    Management’s expected results

n    The auditor’s expected results

Conducting analytical procedures to determine the accuracy and completeness of a business’s financial

records can take anywhere from a few hours to a few days to even a few months. In some instances, audi-

tors form quick conclusions by calculating different financial ratios (e.g., calculating changes in accounts

from one year to the next). In other cases, though, much more research and study is required. Regardless,

the goal of performing analytical procedures is to provide support or evidence that the business’s financial

records meet the following requirements:

n    Completeness—Do the balances contain all transactions for the period?

n    Existence and occurrence—Do the transactions really exist?

n    Rights and obligations—Do the balances (e.g., accounts payable) reflect the business’s true

liabilities?

n    Valuation and allocation—Are the transactions recorded in the financial statements according

to standard procedures?

n    Presentation and disclosure—Have the transactions been recorded properly?

Examples of analytical procedures

Now that we understand the basic goal of performing analytical procedures, let’s look at a number of

different analytical procedures that auditors can use.