Analytical Auditing
Definition
Analytical auditing is an approach to the audit process that involves comparing figures and other financial and non-financial data. The goal is to determine if the data presented appears reasonable. This comparison can be conducted internally within the company’s records or externally against industry standards and benchmarks.
Analytical auditing can be used in various stages of an audit:
- Initial Planning Stage: Helps in understanding the business and identifying potential risk areas.
- During the Audit: Supplements detailed tests to confirm or disprove findings.
- Final Stages: After tests of details have been completed to ensure the audit perspective is substantively reasonable.
Examples
- Trend Analysis: Comparing financial information over multiple periods. For instance, analyzing revenue trends over several years to identify unusual fluctuations.
- Ratio Analysis: Examining relationships between financial statement accounts. For example, the auditor might compare the company’s current ratio to industry averages to assess liquidity.
- Reasonableness Testing: Comparing data with external benchmarks. This could involve comparing a company’s employee expense ratio to industry standards to see if it aligns.
Frequently Asked Questions (FAQs)
What is the primary purpose of analytical auditing?
The primary purpose is to evaluate whether financial statements and related information appear reasonable and consistent with an auditor’s understanding of the company.
When is analytical auditing typically employed?
Analytical auditing methods are employed during the initial planning phase, throughout the audit, and during the final stages of an audit process.
How does analytical auditing differ from traditional auditing?
While traditional auditing often involves detailed examination of individual transactions, analytical auditing emphasizes comparison and plausibility of overall figures in financial statements.
Can analytical auditing replace detailed testing?
No, it typically complements detailed testing by offering a broader perspective. It helps to identify areas that may require more detailed examination.
Is analytical auditing applicable only to financial data?
No, it can involve non-financial data as well. For example, production volumes, market share, or employee headcounts can be considered.
Related Terms
- Analytical Review: A similar approach where auditors compare the unaudited balance sheet, income statement, and cash flow statement with corresponding audited financials from previous years to identify trends and anomalies.
External Resources
Suggested Books for Further Studies
- “Principles of Auditing & Other Assurance Services” by Ray Whittington and Kurt Pany
- “Auditing and Assurance Services: A Systematic Approach” by William F. Messier Jr., Steven M. Glover, and Douglas F. Prawitt
- “The Internal Auditing Handbook” by K.H. Spencer Pickett
- “Essentials of Forensic Accounting” by Michael A. Crain, William S. Hopwood, George R. Young, and Carl Pacini
Accounting Basics: “Analytical Auditing” Fundamentals Quiz
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