Over the past two decades, increasing recognition has been given to the importance of analytical procedures in performing financial statement audits. Their use has been required since SAS 56 became effective in 1989.

Required

a. What are analytical procedures?

b. Where in the audit process can analytical procedures be performed? Which uses of analytical procedures are required by SAS 56 and which are optional?

c. What are the steps involved in performing analytical procedures?

d. What are some of the types of calculations and comparisons commonly used in applying analytical procedures?

e. What sources of data may be used in developing expectations?

f. In analyzing the results of analytical procedures, what factors should be considered in deciding whether a difference or fluctuation in data requires investigation?
g. What steps are taken in investigating unexpected differences?
h. What effect do unexplained significant differences have on audit planning?
i. In comparing the following ratios calculated on current year unaudited data with prior year ratios based on audited data, you discover the following differences. Give the possible reasons for the changes.
1. The rate of inventory turnover has decreased from the prior year's rate.
2. The collection period for accounts receivable has increased from the prior year.