- analytical review
- An auditing technique that focuses on analysis of the movements in *account balances over time, and on assessing the *reasonableness of financial statement items. At the level of financial statements, an auditor’s analytical review typically focuses on changes over time in high-level balances and ratios. It also includes assessments of the interrelationships between items in financial statements. For example, if an organization’s *revenues double in size from one *financial reporting period to the next, then (all things being equal) one would expect the level of *accounts receivable to increase significantly between the two time periods. If accounts receivable did not follow the trend of revenues, analytical review might highlight this apparent inconsistency as an area for further investigation. The analytical review of financial statements may also comprise comparisons with the financial data of similar organizations - for example, an industry average of payroll cost per employee is a common *benchmark to assess the reasonableness of payroll costs. At the level of the *general ledger, analytical review procedures typically involve a scanning of entries in an account for evidence of unusual items, and the analysis of *variances between actual and budgeted balances. Auditors’ analytical review procedures are intended to highlight potential, *material *misstatements in the general ledger or in financial statements. As a high-level audit technique, analytical review usually raises (rather than answers) questions, and therefore tends to be a means of identifying areas for further review. For this reason, analytical review is often a key element in the *audit planning process, though it is considered a valuable *substantive auditing test in its own right. Further reading: Glover et al. (2000); Lin et al. (2003)
Auditor's dictionary. 2014.