Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount.
[2] Analytical procedures include comparison of financial information (data in financial statement) with prior periods, budgets, forecasts, similar industries and so on.
It also includes consideration of predictable relationships, such as gross profit to sales, payroll costs to employees, and financial information and non-financial information, for examples the CEO's reports and the industry news.
When designing and performing substantive analytical procedures, the auditor:[1] If the difference between the expectation and the amount recorded by the entity exceeds the threshold, then the auditor investigates such differences.
[1] In June 2024, the PCAOB proposed a new AS 2305, Designing and Performing Substantive Analytical Procedures, to better align with the auditor’s risk assessment and to address the increasing use of technology tools in performing these procedures.