Northwest Bank

Analytical procedures are the way of evaluation of financial information made by a study of plausible relationships among financial and non-financial data. The auditor performs analytical procedures in three different audit stages which are planning, substantive test, and review stage. The auditor decides whether analytical procedures are used in auditing or not depending on various factors such as sufficiency of evidence, cost-benefit relationship, and the level of assessed control risk. In each stage of auditing, analytical procedures have different objectives. In planning stage, it is through analytical procedures that the auditor could enhance understanding of client’s business, identify changes and transactions that occurred since prior year, and identify unusual transactions and events. The auditor performs analytical procedures in substantive test for reducing detection risk and identifying potential misstatement sin individual account and classes of transactions. In last review stage, the auditor uses analytical procedures to assess the validity of conclusion reached and evaluate overall financial statement presentation. In three stages, the auditor is required to perform analytical procedures in planning and overall review stage of auditing. In substantive stage in auditing, the auditor must consider materiality level, inherent risk, control risk, and efficiency and effectiveness to determine whether analytical procedures are performed in substantive stage or not. In order to evaluate efficiency and effectiveness, the auditor must consider three factors such as availability, reliability, and predictability (Precision). Of three factors, predictability (Precision) is the most important factor as audit evidence because the higher precision, the more accurate relationship that the auditor is able to acquire from analytical procedures.

Even though the auditor could acquire accurate evidence from analytical procedures, analytical procedures are not a perfect...