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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 ISA 520 and IDW PS 312 in Germany
Germany operates a dual-track audit standards system that directly affects how analytical procedures are performed. For audits of public interest entities (PIEs), including companies listed on regulated markets such as the Frankfurt Stock Exchange, ISA 520 Analytical Procedures applies as adopted through the EU's endorsement of international auditing standards. For audits of non-PIE entities, the Institut der Wirtschaftsprüfer (IDW) standard IDW PS 312 Analytische Prüfungshandlungen governs the design and performance of analytical procedures. While IDW PS 312 is conceptually aligned with ISA 520, it includes German-specific elaborations and practice guidance that reflect the traditions and expectations of the German audit profession. The Wirtschaftsprüfer (WP) — the German statutory auditor — must determine which framework applies based on the entity's classification and ensure that analytical procedures meet the requirements of the applicable standard. Both frameworks require the auditor to design analytical procedures that are responsive to the assessed risks of material misstatement, to develop sufficiently precise expectations, and to investigate and evaluate differences that exceed acceptable thresholds. The Wirtschaftsprüferordnung (WPO) establishes the professional framework within which German auditors operate, and compliance with applicable auditing standards, whether ISA or IDW, is a fundamental professional obligation overseen by the WPK (Wirtschaftsprüferkammer).
APAS Inspection Findings on Analytical Procedures
The Abschlussprüferaufsichtsstelle (APAS) is the German audit oversight body responsible for inspecting audit firms that audit PIE entities. APAS inspection findings have identified analytical procedures as an area where audit quality can be improved. Recurring themes in APAS inspection reports include insufficient documentation of the methodology used to develop the auditor's expectation, a lack of rigour in the investigation of differences between expected and recorded amounts, and inadequate consideration of whether analytical procedures at the planning stage have identified previously unassessed risks of material misstatement. APAS has noted that some auditors rely excessively on prior-year comparisons without incorporating forward-looking information or entity-specific operational data. The WPK's quality assurance reviews of non-PIE audit firms (Qualitätskontrolle) have identified similar themes, with additional concerns about the depth of completion-stage analytical procedures and the integration of analytical findings into the overall audit conclusion. APAS publishes an annual activity report (Tätigkeitsbericht) that summarises key inspection findings and provides transparency about the areas where German auditors need to focus their attention on improving quality.
HGB Financial Reporting Framework Considerations
The Handelsgesetzbuch (HGB) — Germany's Commercial Code — establishes the financial reporting requirements for German entities and creates specific considerations for analytical procedures. HGB accounting is governed by the principle of prudence (Vorsichtsprinzip), the realisation principle (Realisationsprinzip), and the imparity principle (Imparitätsprinzip), which together produce financial statements that tend to be more conservative than those prepared under IFRS. This conservatism affects the expected relationships and trends that auditors use when designing analytical procedures. For example, the HGB prohibition on recognising unrealised gains means that revenue trends under HGB may differ from those under IFRS for the same entity, and provisions may be recognised more aggressively under HGB's broader obligation framework. German auditors must also consider the impact of HGB-specific items such as the Aufwandsrückstellungen (expense provisions under Section 249 HGB), the Sonderposten mit Rücklageanteil (special items with reserve element), and the tax-driven accounting choices permitted under HGB that create differences between economic substance and reported figures. When performing analytical procedures on HGB financial statements, the auditor must understand these framework-specific characteristics to develop expectations that are appropriate for the reporting basis being audited, rather than applying generic analytical techniques that may not account for HGB particularities.
Practical Application for German Audits
German auditors performing analytical procedures should consider the rich landscape of publicly available economic and industry data that can support expectation development. The ifo Business Climate Index, published monthly by the ifo Institute at the University of Munich, provides forward-looking sentiment data for German industry sectors. The Deutsche Bundesbank publishes macroeconomic statistics including GDP growth, inflation, and credit conditions that are relevant for adjusting historical trends. Industry-specific data from the Statistisches Bundesamt (Federal Statistical Office), DIHK (Deutscher Industrie- und Handelskammertag), and sector associations such as the VDA (automotive), VDMA (mechanical engineering), and BDI (Federation of German Industries) can be used to benchmark entity performance against sector norms. For Mittelstand entities, which form the backbone of the German economy, analytical procedures should account for the typical characteristics of owner-managed businesses, including the interrelation between personal and business finances, the impact of Gesellschafter-Geschäftsführer (shareholder-director) compensation on profitability ratios, and the potential for related-party transactions that affect comparability across periods. The auditor must ensure that analytical procedures are designed with sufficient precision to identify material misstatements, taking into account the size and complexity of the entity and the quality of the available comparative data.
Common Inspection Findings — APAS (Audit Oversight Body) / WPK (Chamber of Public Accountants)
The following are typical findings from APAS (Audit Oversight Body) / WPK (Chamber of Public Accountants) inspections relating to analytical procedures:
Insufficient documentation of the methodology used to develop the auditor's expectation — procedure not clearly described in the audit file
Over-reliance on prior-year comparisons without incorporating current macroeconomic data or entity-specific operational information
Inadequate investigation of significant differences between expected and recorded amounts at the completion stage
Failure to integrate planning-stage analytical findings into the risk assessment and subsequent audit procedures under ISA 315
Lack of precision in expectation development — expectations set at too high a level of aggregation to identify material misstatements