The use of analytical procedures is addressed throughout the new Canadian Auditing Standards (CASs). CAS 500, Analytical procedures, discusses the use of analytical procedures throughout the audit. CAS 315 identifies analytical procedures as one of the techniques to be used by an auditor as a risk assessment procedure to obtain an understanding of the entity and its environment — in other words, as part of the planning process. CAS 520 states that in obtaining sufficient appropriate audit evidence, the auditor may employ analytical procedures as a substantive evidence-gathering technique and that the auditor shall use analytical procedures to assist in forming an overall conclusion on the financial statements. The approach of this course is to discuss analytical procedures in the context of each of the three phases of the audit: planning, examination, and final review.

This self-study course is intended to provide external auditors with an understanding of the use of analytical procedures and to provide suggestions on how client financial information may be used in this process. Specifically, this course addresses the more volatile results of smaller firms, highlighting how the techniques used in analytical procedures must be tailored to the environments in which they are used. A secondary purpose of the course is to outline where professional judgment is needed in the application of these techniques.

Module 1 provides an introduction to analytical procedures and discusses their use in the planning phase of the audit. It introduces techniques such as ratio analysis, “common-size” financial statements, and trend analysis.

Module 2 deals with the examination phase of the audit. It provides an overview of analytical procedures for the balance sheet and some related income statement accounts.

Module 3 deals with the examination phase of the audit. It provides an overview of analytical procedures that may be applied to the income statement.

Module 4 covers the final review phase of the audit and concludes with a summary of analytical procedures and the potential problems that could arise from overreliance on analytical procedures.

The course comprises four Modules. Each module in this guide includes a bibliography for those wishing to examine a topic in greater depth. At the end of the four modules, there are two online quizzes to test your understanding of the concepts. Further information and data referred to in the modules are included as Appendices. Note that Appendix H is referenced in the quiz component.

Module 1 Analytical procedures as planning tools
Introduction to analytical procedures
Techniques
Statement of cash flows
Conclusion

Module 2 The examination phase — Part I
The balance sheet
Conclusion

Module 3 The examination phase — Part II
The income statement
Conclusion

Module 4 The final review
ROA, ROE, and reasonableness tests
Concluding remarks on analytical procedures

Quiz 1

Quiz 2

Appendices
Appendix A — Financial statements for Xenon Co.
Appendix B — Commonly used ratios
Appendix C — Selected ratios calculated for Xenon Co.
Appendix D — Common-size and percentage change financial statements for Xenon Co.
Appendix E — Comparison tables from Statistics Canada
Appendix F — CGA‑Canada Public Practice Manual sample pages
Appendix G — Quantitative methods in analytical procedures
Appendix H — Data for quizzes