The application of analytical procedures in the audit process

Abstract

The application of analytical procedures has become an integral part of the audit process and indications are that the application of these procedures will increase in audits of the future. The factors that are causing a shift in audit methodologies towards increasing the application of analytical procedures are the adaptation of a business risk audit methodology, technological advancements and the incorporation of non-financial information in an audit. These factors enable the auditor to incorporate both financial and non-financial information into decision making and thus develop more precise expectations. Numerous studies have been conducted in various countries on the auditor s application of analytical procedures in the audit process. However, little is known about exactly how auditors in South Africa apply analytical procedures as part of the audit process. Owing to an ever-changing audit environment, a closer look into the application of analytical procedures by South African auditors was deemed both timely and appropriate. The overall objective of this study was to investigate the application of analytical procedures by auditors in the audit process. To achieve the objective of this study, a qualitative research approach was applied whereby semi-structured interviews were held with senior audit managers from large audit firms in South Africa. This provided the researcher with rich and detailed descriptions of the application of analytical procedures by auditors in the audit process. The findings of this study, which resulted from data analysis, indicated that there is a need to apply analytical procedures because this adds value to the audit and can enhance its efficiency and effectiveness. However, numerous challenges have been associated with the application of analytical procedures. The findings also indicated that the application of analytical procedures depends on the availability and integrity of clients data and that it is difficult to obtain reliable data for the development of an expectation. It also emerged from the findings that auditors are unsure of the results obtained from analytical procedures owing to a lack of guidance in the auditing standards on the extent of assurance that can be placed on analytical procedures and on how to apply professional judgement in drawing conclusions. Auditors competence to perform analytical procedures limits them in applying these procedures. There seems to be a gap between university studies and audit practice relating to the application of analytical procedures (also data analysis) and the use of information technology. The advantages, however, outweigh the challenges and it is therefore foreseen that the application of analytical procedures will increase in the future.