In this lesson, the first step in utilizing analytical procedures in substantive testing is discussed, which involves developing an expectation of a balance or ratio by using relationships that are expected to exist. Additionally, it is emphasized that the reasons for any differences should be identified before consulting client management. Nick Palazzolo also provides a breakdown of the three primary purposes of analytical procedures in an audit: preliminary, substantive, and final analytical review. Important considerations during the final review phase are covered, such as the adequacy of evidence gathered, reading the financial statements, and performing additional tests if needed. The lesson concludes by explaining the two main types of analytical procedures: comparative analysis and trend analysis, and how they are used to identify trends and unusual items.
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