All 18 Analytical Procedures questions
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What are analytical procedures? At what stages of the audit are analytical procedures used? What comparisons are commonly used in analytical procedures? What is trend analysis? How do analytical procedures help in risk assessment (planning)? What is the difference between analytical procedures and tests of details in simple terms? What is a substantive analytical procedure and when is it appropriate? How do you develop an expectation for analytical procedures? How do you investigate significant fluctuations found by analytical procedures? Why is disaggregation important in analytical procedures?
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Auditing & Assurance › Analytical Procedures

What is ratio analysis in auditing?

Beginner

Answer

Ratio analysis computes and compares financial ratios (gross margin, current ratio, receivables/inventory days, gearing) across periods, to budget, and to industry norms to spot anomalies signaling possible misstatement or business risk. Unexpected ratio movements prompt inquiry and further testing.
Gross margin: (Revenue - COGS) / Revenue
Receivables days: (Receivables / Credit sales) x 365
Real-world example A sudden jump in receivables days suggests possible overstated revenue or collection problems to investigate.

Common follow-ups: What might a falling gross margin indicate? | Which ratios flag receivables issues?

Audit Evidence & Procedures Going Concern Analytical Procedures
All 18 Analytical Procedures questions