ISA 520 deals with the auditors’ responsibilities in terms of the use of analytical procedures, which are also referred to as substantive analytical procedures. Analytical procedures are an essential tool in analysing the relationships between items of financial data, or between items of financial and non-financial data, deriving from the same period. In addition, analytical procedures also help to compare financial information deriving from different periods to identify inconsistencies and predicted patterns or significant fluctuations and unexpected relationships, and the results of investigations thereof.


Analytical procedures are a particularly useful audit procedure at the planning stage of an audit because they allow the auditor to consider whether reliance can be placed on analytical review to reduce risk or whether the auditor needs to increase work in any area.

Analytical procedures used at the planning stage of the audit can identify those audit areas which might be considered ‘key’ audit areas. For example, if the gross profit margins have reduced disproportionately from one year to the next, the auditor may focus on understanding why this reduction has occurred and ask questions such as ‘has inventory been valued correctly?’ ‘Are cut-offs correct?’ ‘Is revenue complete?’

Analytical procedures used in planning have to be seen in conjunction with the auditor’s risk analysis and materiality. ...

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