## SA 520 – Analytical Procedures: Meaning, Types, Scope & Purpose

### Meaning

Analytical Procedures (AP) = Evaluation of financial information through analysis of plausible relationships among both financial and non-financial data.

Simply: comparing numbers and spotting what looks unusual or unexpected.

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### 5 Types of Analytical Procedures

Type	Basis of Comparison
1	Client data vs. Industry data
2	Client data vs. Similar prior period data
3	Client data vs. Client-determined expected results
4	Client data vs. Client-determined expected results using non-financial data
5	Client data vs. Auditor-determined expected results

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### Scope / Objective (SA 520)

1. Obtain relevant and reliable audit evidence when using AP as substantive procedures

2. Design and perform AP near the end of audit to assist in forming an overall conclusion on whether the FS are consistent with the auditor's understanding of the entity

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### Purpose of Analytical Procedures

AP use comparisons and relationships to assess whether account balances and other data appear reasonable. They:

Help identify unusual transactions/events
Help detect unusual states of affairs, mistakes in accounts, and matters with audit implications
Identify unusual or unexpected relationships → assist in identifying ROMM, especially due to fraud

Worked example

### Example 1

Example – Detecting fraud via AP: The auditor compares salary expense for the current year (₹1.2 crore) against prior years (₹80 lakh, ₹85 lakh, ₹90 lakh). The jump is disproportionate to headcount growth. This unusual relationship raises the possibility of fraudulent payments to ghost employees — an ROMM due to fraud.

### Example 2

Example – Type 4 AP (non-financial data): The auditor expects electricity expense to correlate with production volume (units). Production was 10,000 units (same as last year) but electricity cost doubled. This non-financial comparison flags a potential misstatement or operational issue.

⚠️ Common exam mistakes

Limiting AP to just ratio analysis — SA 520 recognises 4 techniques (trend, ratio, reasonableness test, structural modelling)
Thinking AP is only used at one stage — AP should be used at ALL three stages: planning, testing (substantive), and completion
Forgetting that AP can identify ROMM due to fraud, not just errors
Confusing 'types of AP' (basis of comparison) with 'techniques of AP' (how the analysis is done)

Bare-Act text SA 520 – Definition of 'Analytical Procedures' · SA 520 – Analytical Procedures (ICAI) · click to expand

The term analytical procedures means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.

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Meaning, Types, Scope and Purpose of Analytical Procedures

Worked example

⚠️ Common exam mistakes