## SA 520 — Analytical Procedures: Overview

### Definition

Analytical Procedures (AP) = Evaluation of financial information through analysis of plausible relationships among both:

Financial data (e.g., wages paid), and
Non-financial data (e.g., number of workers).

> Classic example: `Total Wages = No. of Workers × Wage Rate per Worker`

> Here, non-financial data (headcount) explains financial data (wage expense).

### What AP Includes

AP encompasses two broad categories of analysis:

Category A — Comparisons	Category B — Relationships
Entity's figures vs. previous year	Relationships among elements of financial info
Entity's figures vs. anticipated/budgeted results	Predictable patterns from financial & non-financial data
Entity's figures vs. similar industry information

### Objectives of AP under SA 520

(a) Substantive Evidence Objective

To obtain relevant and reliable audit evidence by using substantive analytical procedures.

(b) Overall Conclusion Objective

To design and perform AP near the end of audit to assist the auditor in forming an overall conclusion consistent with the auditor's understanding of the entity's financial statements.

Worked example

### Example 1

Category A Comparison: The auditor compares the entity's salary expense for the current year (₹50 lakh) with the prior year (₹42 lakh) — an 19% increase. The entity only added 5% more staff. This unexpected variance prompts deeper investigation.

### Example 2

Category B Relationship: Interest expense should bear a predictable relationship to average interest-bearing debt × applicable rate. If interest expense is significantly higher or lower than this product, a potential misstatement is flagged.

### Example 3

Non-financial data linkage: Rental income = No. of units × average rent per unit. If occupancy rate is 80% and average rent is ₹10,000/month, expected annual rental = 0.80 × units × ₹1,20,000. Recorded revenue deviating materially from this triggers investigation.

⚠️ Common exam mistakes

Treating AP as only a planning tool — SA 520 uses AP at all three stages: planning, testing, and completion.
Forgetting that AP covers non-financial data relationships, not just comparisons between financial line items.
Confusing the two objectives: objective (a) is about gathering substantive evidence during the audit; objective (b) is specifically about the wrap-up/completion phase review.

Reference: SA 520 — Paragraphs 1–4 (Objective and Definition) — SA 520 — Analytical Procedures (ICAI)

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SA 520 Analytical Procedures — Overview and Objectives

Worked example

⚠️ Common exam mistakes