Analytical Review

Auditing process that tests relationships among accounts and identifies material changes. It involves analyzing significant ratios and trends for unusual changes and questionable items. Included in the analytical review process are: (1) reading important documents and analyzing their accounting and financial effects; (2) reviewing the activity in an account between interim and year-end, especially noting entries out of the ordinary; and (3) comparing current period account balances to prior periods as well as to budgeted amounts, noting reasonableness of account balances by evaluating logical relationships among them (i.e., relating payables to expenses, accounts receivable to sales).

Auditing process that tests relationships among accounts and identifies material changes. It involves analyzing significant ratios and trends for unusual change and questionable items. Included in the analytical review process are: (1) reading important documents and analyzing their accounting and financial effects; (2) reviewing the activity in an account between interim and year-end, especially noting entries out of the ordinary; (3) comparing current period account balances to prior periods as well as to budgeted amounts, noting reasonableness of account balances by evaluating logical relationships among them (i.e., relating payables to expenses, accounts receivable to sales). In essence, therefore, analytical review involves reading the Financial Statements, scanning the figures, making comparisons to prior periods, appraising logical relationships among accounts, tracing financial statement items to the financial statements, and analyzing the overall process. The degree of analytical review required depends on the Materiality of the item, available supporting data, and the quality of the internal control system. Analytical review assists in assuring the accuracy and reliability of the accounts.