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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 CAS 520 in Canada
Canada adopted ISA 520 as Canadian Auditing Standard (CAS) 520 Analytical Procedures through the Auditing and Assurance Standards Board (AASB), which operates under the auspices of CPA Canada. The CAS framework adopts ISAs with limited Canadian modifications, and CAS 520 is substantively identical to the international standard. The standard requires auditors to design and perform analytical procedures as substantive procedures where appropriate for the assessed risk, and to perform analytical procedures near the end of the audit to form an overall conclusion on the financial statements. All public accountants licensed by a provincial or territorial CPA body are required to comply with CAS 520 when performing audits of financial statements. The Canadian Public Accountability Board (CPAB) exercises oversight of audit firms that audit reporting issuers (public companies) listed on Canadian securities exchanges, including the Toronto Stock Exchange (TSX) and the TSX Venture Exchange. The Canadian Securities Administrators (CSA), comprising the provincial and territorial securities regulators, establish the financial reporting requirements for reporting issuers, including the requirement for an annual audit. Canadian auditing practice operates within a bilingual (English and French) environment, with CAS published in both official languages and audits performed in both languages across the country.
CPAB Inspection Findings on Analytical Procedures
CPAB conducts annual inspections of audit firms that audit Canadian reporting issuers and has consistently identified analytical procedures as an area requiring improvement. CPAB's published annual inspection results and public reports provide detailed insight into the deficiencies observed. CPAB has specifically noted that auditors need to develop more precise expectations when performing substantive analytical procedures. Recurring CPAB findings include the following themes. Auditors develop expectations at too high a level of aggregation, using entity-wide assumptions rather than disaggregating by business segment, geographic region, or product line where different drivers would produce different expected outcomes. The data used to develop the expectation is not sufficiently independent of the amounts being tested — auditors sometimes use management-prepared budgets or forecasts as the primary basis for their expectation without adequately evaluating the reliability of those inputs. The threshold for investigating differences is not always clearly established before the procedure is performed, and when differences are identified, the investigation often consists primarily of inquiry of management without obtaining corroborating evidence. CPAB has also noted that the analytical procedures performed at the completion stage are sometimes performed as a formality rather than as a substantive procedure that contributes to the auditor's overall conclusion. These findings are communicated to individual firms through CPAB's inspection reports and to the profession through CPAB's annual public report and stakeholder communications.
IFRS and ASPE Dual-Framework Considerations
Canada operates a dual financial reporting framework that creates specific considerations for analytical procedures. Reporting issuers (public companies) are required to prepare financial statements under IFRS as adopted in Canada, which is identical to IFRS as issued by the IASB except for limited additional Canadian disclosure requirements. Private enterprises may choose to report under Accounting Standards for Private Enterprises (ASPE), which is a separate Canadian framework based on simplified principles derived from the former Canadian GAAP. The differences between IFRS and ASPE affect the expected relationships and trends that auditors use in analytical procedures. For example, ASPE uses an incurred loss model for impairment of financial assets rather than the IFRS 9 expected credit loss model, which produces different patterns in bad debt expense and allowance balances. Revenue recognition under ASPE follows Section 3400, which retains the risks-and-rewards model rather than the IFRS 15 control-transfer approach. ASPE permits the direct expensing of certain development costs that would be capitalised under IAS 38, affecting the composition of operating expenses and intangible assets. Auditors performing analytical procedures must ensure that their expectations reflect the measurement and recognition bases of the applicable framework, and must avoid applying IFRS-based assumptions to ASPE financial statements or vice versa. For groups with both public and private entities, consolidation adjustments between IFRS and ASPE create additional complexity that auditors must factor into their analytical review.
Practical Application in the Canadian Context
Canadian auditors have access to extensive independent data sources that support the development of precise analytical expectations. Statistics Canada publishes comprehensive economic and industry-specific data through the Canadian System of National Accounts, the Labour Force Survey, and industry-specific surveys such as the Monthly Survey of Manufacturing. The Bank of Canada provides macroeconomic forecasts, the overnight lending rate, and financial stability data relevant to forward-looking analytical adjustments. Industry associations such as the Canadian Manufacturers and Exporters (CME), the Canadian Association of Petroleum Producers (CAPP), and the Mining Association of Canada publish sector-specific data useful for benchmarking. Canada's resource-dependent economy means that auditors must pay particular attention to commodity price trends when developing analytical expectations for entities in the oil and gas, mining, forestry, and agricultural sectors. Auditors should reference commodity price benchmarks such as the Western Canadian Select (WCS) oil price, the TSX metals and mining index, and Statistics Canada agricultural price indices to develop expectations for revenue and cost trends in resource-sector entities. CPA Canada has published guidance on the use of analytical procedures and data analytics in the audit, including practical examples of how to develop expectations using publicly available Canadian data. Provincial CPA bodies also offer continuing professional development on analytical procedures that addresses CPAB inspection findings and practical techniques for improving the precision and documentation of analytical review.
Common Inspection Findings — CPAB (Canadian Public Accountability Board) / CPA Canada
The following are typical findings from CPAB (Canadian Public Accountability Board) / CPA Canada inspections relating to analytical procedures:
Expectations developed at too high a level of aggregation — entity-wide analysis performed without disaggregation by segment, product line, or geographic region
Reliance on management-prepared budgets and forecasts as the primary basis for the expectation without evaluating the reliability and independence of those inputs
Investigation of differences between expected and recorded amounts limited to management inquiry without obtaining corroborating evidence from independent sources
Completion-stage analytical procedures performed as a mechanical comparison without developing independent expectations or considering the consistency of financial statements with accumulated audit evidence