Analytical and Diagnostic Procedures in Auditing
dThe auditor should
apply diagnostic processes at the planning and overall review stages
of the audit. diagnostic auditing processes may also be applied at
other stages. diagnostic auditing processes means, analysis of
significant ratios and trends, including investigation of fluctuation
and relationships that are inconsistent with the other important
information or which changes as compared to predicted amounts.
diagnostic processes include the consideration of comparison of the
entity’s financial information with either comparable
information for the prior period or anticipated results such as budgets
and forecasts or even similar industry information.
Various methods may be used in performing the diagnostic auditing processes. Diagnostic auditing processes may be applied to
consolidated financial statements, financial statements of components
of the entity or even to individual components of financial information.
The auditor’s choice of processes, methods and level of
applications is a matter of professional judgment.
diagnostic auditing processes are used for the following purposes to
assist the auditor in planning the audit and over all review of the
financial statement in the final review level of the audit.
The auditor should apply diagnostic auditing processes at the planning
stage to assist in understanding the business and in identifying areas
of potential risk. diagnostic processes in planning the audit use both
the financial and non financial information, for example, the
relationship between sales and volume of goods sold.
The auditor’s reliance on substantive auditing processes to
reduce the conclusive risk relating to specific statements
relating to financial matters,
assertions may be concluded from tests and analysis of details, from
diagnostic processes, or from combination of both. It may be efficient
to use diagnostic data prepared by the entity, provided the auditor is
satisfied that such data is properly evaluated and prepared.
When diagnostic auditing procedure identify significant fluctuations or
relationships that are inconsistent with other relevant information the
auditor should investigate and obtain adequate explanation and
appropriate corrobative evidence.