Definition of Analytical Procedures (Ref: Para. 4)
Analytical procedures include the consideration of comparisons of the entity’s financial information with, for example:
Comparable information for prior periods.
Anticipated results of the entity, such as budgets or forecasts, or expectations of the auditor, such as an estimation of depreciation.
Similar industry information, such as a comparison of the entity’s ratio of sales to accounts receivable with industry averages or with other entities of comparable size in the same industry.
Analytical procedures also include consideration of relationships, for example:
Among elements of financial information that would be expected to conform to a predictable pattern based on the entity’s experience, such as gross margin percentages.
Between financial information and relevant non-financial information, such as payroll costs to number of employees.
Various methods may be used to perform analytical procedures. These methods range from performing simple comparisons to performing complex analyses using advanced statistical techniques. Analytical procedures may be applied to a consolidated financial report, components and individual elements of information.