Analytical Review

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Analytical Review

Any process by which a person or company looks at an account or financial statement and attempts to identify any irregularities. This may involve comparing financial and non-financial information. An analytical review is less thorough than an audit. In general, an analytical review can lead to an audit if odd information is found. A CPA often leads an analytical review.
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Most of the analytical review techniques that auditors can apply during the planning stage are simple when compared to the more-complex procedures performed when using data extraction and analysis software.
Analytic software can then be used to supplement the trend analysis with comparisons to industry data from online databases to further support the preliminary analytical review. Finally, budget expectations or other calculated predictive tests, such as interest expense from an amortization schedule, can be factored in and compared to the trend analysis and industry data.
The simplicity of many analytical review procedures is both the greatest strength and the greatest weakness of such approaches.
CPAs performing analytical reviews in the audit of a manufacturing client should adjust their expectations of ratio variation to compensate for the effects of a JIT/TQM adoption.
This article provides a comprehensive perspective on auditing the modern manufacturer and helpful insights on performing analytical review procedures of the financial statements of these companies.
The authors surveyed the impact of JIT/TQM on the auditor's analytical review by testing for significant differences in various financial ratios of 103 JIT/TQM companies for the periods before and after the adoption.
Analytical Review. SAS 56, Analytical Procedures, requires the use of analytical procedures in the review phase of all audits.
The analytical review consists of applying analytical procedures to determine whether the conclusions reached during an audit are valid or, in the case of a review that the financial statements do not appear to contain material misstatement.
Documentation of the analytical review may consist of descriptions of the resolutions of any unusual relationships noted and a simple sign off on a work program step or a memo describing the review.
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