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The Auditor's Guide to Analytical Procedures Under ISA 520
Complete guide: ISA 520 requirements quick reference, decision flowchart for when to use analytical procedures vs. tests of details, industry-specific ratio checklists for 12 sectors, threshold-setting guide by risk level, sample completed working paper, common quality-review findings, and documentation checklist.
Analytical Review Under ASA 520 in Australia
Australia adopted ISA 520 as ASA 520 Analytical Procedures through the Auditing and Assurance Standards Board (AUASB). The AUASB's approach is to adopt ISAs with limited modifications, primarily adding Australian-specific paragraphs prefixed with "Aus" that address local regulatory requirements without changing the substantive content of the international standard. ASA 520 therefore mirrors the requirements of ISA 520 in all material respects, requiring auditors to design and perform analytical procedures as substantive procedures when determined to be appropriate, and to perform analytical procedures at or near the end of the audit to form an overall conclusion on whether the financial statements are consistent with the auditor's understanding of the entity. All registered company auditors in Australia must hold registration with the Australian Securities and Investments Commission (ASIC) and are required to comply with ASA 520 in the performance of statutory audits under the Corporations Act 2001. The Corporations Act establishes the framework for financial reporting and auditing of companies, registered managed investment schemes, and disclosing entities, and Section 307A requires the auditor to form an opinion on whether the financial report complies with the accounting standards and gives a true and fair view. Analytical procedures under ASA 520 are a key tool in enabling the auditor to satisfy this statutory obligation by providing evidence about the reasonableness and consistency of reported financial information.
ASIC Audit Inspection Findings on Analytical Procedures
ASIC conducts an ongoing audit inspection programme that reviews a sample of completed audit engagements from firms registered to audit disclosing entities and other public interest entities. ASIC's published inspection reports and surveillance findings have consistently identified analytical procedures as a recurring area for improvement. ASIC has specifically noted that auditors frequently do not develop expectations with sufficient precision to identify material misstatements. Common ASIC findings include the following themes. The auditor's expectation is based on general knowledge of the entity's business or prior-year figures adjusted for a generic growth rate, rather than being built from identified relationships between financial and non-financial data specific to the entity and the period under audit. The threshold for investigating differences is set at too high a level or is not clearly established before performing the procedure, meaning that the auditor assesses significance retrospectively. The investigation of differences between expected and recorded amounts relies on inquiry of management without obtaining corroborating evidence, and the corroborating procedures performed are often insufficiently rigorous to determine whether the difference indicates a potential misstatement. ASIC has published information sheets and reports, including INFO 196 Audit Quality and related surveillance reports, that detail these findings and set expectations for the profession. The Financial Reporting Council (FRC) — which oversees the AUASB and has a strategic role in audit quality — monitors ASIC's findings to inform standard-setting priorities.
Australian Accounting Framework Considerations
Australian auditors performing analytical procedures must consider the financial reporting framework applicable to the entity. For-profit entities preparing general purpose financial statements under Tier 1 apply Australian Accounting Standards, which are based on IFRS as issued by the IASB with limited modifications (primarily the addition of Australian-specific paragraphs and Reduced Disclosure Requirements for Tier 2 reporters). Not-for-profit entities apply Australian Accounting Standards with additional requirements specific to the not-for-profit sector, including AASB 1058 Income of Not-for-Profit Entities, which affects revenue recognition in ways that impact analytical expectations. Special purpose financial statements, historically common in Australia for proprietary companies and small entities, are being phased out following amendments to AASB 1053 and the introduction of the simplified disclosure framework. Auditors must understand which tier of the reporting framework applies and how it affects the presentation and measurement of financial data used in analytical procedures. The interaction between Australian Accounting Standards and the Corporations Act requirements, including the provisions for small proprietary companies under Section 292 and the reporting obligations for large proprietary companies under Section 292(2), creates a layered reporting landscape that affects the scope and depth of analytical procedures required.
Practical Application in the Australian Context
Australian auditors performing analytical procedures can draw on a range of independent data sources to develop expectations. The Australian Bureau of Statistics (ABS) publishes comprehensive economic and industry-specific data, including the Australian National Accounts, labour market statistics, business indicators, and sector-specific surveys. The Reserve Bank of Australia (RBA) provides macroeconomic data including the cash rate target, GDP forecasts, inflation projections, and financial stability assessments that inform forward-looking analytical adjustments. Industry bodies such as the Australian Industry Group (Ai Group), the Australian Chamber of Commerce and Industry (ACCI), and sector-specific associations publish data that supports benchmarking entity performance against industry norms. For entities operating in the mining and resources sector, which is a significant part of the Australian economy, commodity price data from the Department of Industry, Science and Resources and global benchmarks provide critical inputs for analytical review of revenue and cost trends. The agricultural sector requires consideration of seasonal patterns, commodity prices, and the Bureau of Meteorology climate data that affects production volumes. ASIC has emphasised that auditors should leverage these independent data sources to build more precise expectations rather than relying on generic trend assumptions or management-provided information that lacks independence. The AUASB has also published guidance on the use of data analytics in the audit context, encouraging firms to develop technology-enabled analytical procedures while maintaining professional scepticism in evaluating outputs.
Common Inspection Findings — ASIC (Australian Securities and Investments Commission) / AUASB (Auditing and Assurance Standards Board)
The following are typical findings from ASIC (Australian Securities and Investments Commission) / AUASB (Auditing and Assurance Standards Board) inspections relating to analytical procedures:
Insufficient precision in the auditor's expectation — expectations based on prior-year balances with generic growth adjustments rather than entity-specific operational and financial data
Investigation threshold not clearly established before performing the analytical procedure or set at a level too high to identify potential material misstatements
Over-reliance on inquiry of management to investigate differences without obtaining independent corroborating evidence
Failure to consider the absence of expected fluctuations as a potential indicator of material misstatement or fraud risk
Completion-stage analytical procedures not performed with sufficient depth to contribute meaningfully to the overall audit conclusion