Analytical procedures
In one sentenceComparing recorded figures with expectations based on previous years, ratios or other data, to detect unexplained differences.
Simply put
The auditor builds an expectation of the figure, such as the cost of sales based on the usual profit margin, then compares it with the recorded amount. A large unexplained difference needs detailed examination.
They are used in planning to identify risky items, during fieldwork as evidence, and at the end to review the overall picture of the statements.
Worked example
A restaurant's usual gross profit margin is 60%. Its sales this year were 2,200,000 SAR, and cost of sales was recorded at 1,100,000 SAR.
Expected cost ratio100% − 60% = 40%
Expected cost2,200,000 × 40% = 880,000 SAR
Recorded cost1,100,000 SAR
Difference that needs an explanation from management220,000 SAR
Formula: Difference = recorded figure − expected figure
Don't confuse it with
Tests of detailsAnalytical procedures look at aggregate figures and their relationships, while tests of details examine documents one by one.