Page 103 - Internal Auditing Standards

Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts

The steps involved in performing analytical procedures are outlined in the exhibit below.

Exhibit 8.5-1

What To Do How To Do It
Identify Develop expectations about plausible relationships among the various types of
Relationships information that could reasonably be expected to exist. Where possible, seek to use
within the Data independent (i.e., not internally generated) sources of information.

The financial and non-financial information could include:

• Financial statements for comparable previous periods;
• Budgets, forecasts, and extrapolations, including extrapolations from interim or
annual data; and
• Information regarding the industry in which the entity operates and current
economic conditions.

Compare Compare expectations with recorded amounts or ratios developed from recorded
amounts.

Evaluate Results Evaluate the results.
Where unusual or unexpected relationships are found, consider potential risks of
material misstatement.

The results of these analytical procedures should be considered along with other information gathered to:
• Identify the risks of material misstatement related to assertions embodied in signifi cant fi nancial
statement items; and

• Assist in designing the nature, timing, and extent of further audit procedures.

Note: Some smaller entities may not be able to provide the auditor with current financial information such as
interim or monthly financial information for performing analytical procedures. In these circumstances,

some information may be obtained through inquiry, but detailed inquiries may need to wait until an

early draft of the entity’s financial statements is available.

8.6 Observation and Inspection

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