Advantages of Analytical procedures
(1) The principal advantage of analytical procedures is that they can be applied at all stages of the audit to inquire into the absolute amounts to be reflected in the financial statements, and into the relationships between those amounts.
(2) These procedures are a good test for the overall reasonableness of an amount. They can be applied on a universal basis, and they can be broken down into their individual elements.
(3) Analytical procedures help the auditor to make comparisons on a regular basis, taking prior years into consideration, and providing the auditor with a better understanding of both the business as a whole, and of individual account areas.
(1) The principal advantage of analytical procedures is that they can be applied at all stages of the audit to inquire into the absolute amounts to be reflected in the financial statements, and into the relationships between those amounts.
(2) These procedures are a good test for the overall reasonableness of an amount. They can be applied on a universal basis, and they can be broken down into their individual elements.
(3) Analytical procedures help the auditor to make comparisons on a regular basis, taking prior years into consideration, and providing the auditor with a better understanding of both the business as a whole, and of individual account areas.
Disadvantages of Analytical procedures
(1) Since analytical procedures often have to be performed on draft or incomplete accounts before the final financial statements have been prepared, significant adjustments, which are often made at a later stage, are not taken into consideration.
(2) Without a proper understanding of the business, the auditor may be tempted to accept the results of analytical procedures that show no unusual variations, which may not be the case if there have been significant changes in the business of which the auditor is unaware and which management may try to conceal from the auditors.
(3) Auditors may also be tempted to accept ‘plausible’explanations for changes and variations without much further substantiation, where further investigation may actually be needed.
(2) Without a proper understanding of the business, the auditor may be tempted to accept the results of analytical procedures that show no unusual variations, which may not be the case if there have been significant changes in the business of which the auditor is unaware and which management may try to conceal from the auditors.
(3) Auditors may also be tempted to accept ‘plausible’explanations for changes and variations without much further substantiation, where further investigation may actually be needed.