Analytical procedures are checks that compare numbers with expectations: last year, budget, industry norms, or a relationship between two figures, to spot what does not look right. Auditors use them three times: at planning to find risk, during the audit as a substantive test, and at the end to see whether the statements make sense as a whole. SA 520 covers the last two uses.
Last reviewed: 17 October 2026. Facts checked. We ran web searches on SA 520 and opened an ACCA technical article on analytical procedures, which describes the ISA version. The ICAI copy of SA 520 turned up in search but its host returned a certificate error, so we could not open it and relied on search summaries. We did not open the standard text, so the stage-by-stage description follows ISA-based explanations. The example is invented, with deliberately round figures.
The idea first
Most accounts follow patterns. Rent is about the same each month. Cost of goods sold moves with sales. Payroll moves with headcount. If a figure breaks its pattern, something may be wrong, or something real may have changed. An analytical procedure is the habit of asking "what should this number be?" and then comparing.
Common techniques named in practitioner guides are trend analysis (this year against earlier years), ratio analysis (for example gross margin or debtor days) and reasonableness tests (build the number from other data, such as rent per month multiplied by months).
The three stages
| Stage | Purpose | Required? | Standard |
|---|---|---|---|
| At planning | Understand the business and find risk areas | Yes, as part of risk assessment | SA 315 |
| During fieldwork | Obtain audit evidence about an assertion | Optional, when it is better or cheaper than tests of details | SA 520 |
| Final review | Check that the statements fit what the auditor knows | Yes | SA 520 |
SA 315 as the planning source is stated in the ACCA article in ISA terms. ICAI's search summaries describe SA 520 as dealing with substantive use and with the overall conclusion near the end, which matches the table.
1. At planning
A preliminary review compares this year's figures with prior years, with budget and, if available, with peers. It helps shape the audit strategy. Unusual movements point to areas of higher risk, such as a revenue jump with falling receivables collection. These results feed the risk assessment.
2. As a substantive procedure
Here the analytical procedure is itself audit evidence. It suits large volumes of predictable transactions, such as payroll, rent, interest and depreciation. The ACCA article makes four practical points:
- Form an independent expectation first. The auditor builds the expected figure from reliable data and plausible relationships. The article calls this the most important step.
- Set the acceptable difference before comparing. Decide the threshold during planning, so it is not bent to fit the result. It should not exceed planning materiality.
- Investigate the full difference. Seek explanations for the whole difference, not just the part above the threshold.
- Verify the explanations. Management's answer is not evidence by itself. Check it against documents.
Precision depends on how detailed the data is, how reliable it is and how predictable the item is. Monthly data gives a sharper expectation than annual totals.
3. Final overall review
Near the end, the auditor steps back and asks whether the statements are consistent with everything learned during the audit. The ACCA article says this review is not meant to give extra substantive assurance. If it reveals something unexpected, the auditor goes back and revisits the risk assessment and the work done.
Worked example: employee cost
A company has stable staffing. The auditor wants evidence over salary expense.
- Expectation. Take monthly headcount by grade from HR records, multiply by contractual salary per grade, add the known increments, and add statutory contributions at the rates in force. This gives an expected total.
- Threshold. Decided at planning: the difference must stay below a set amount linked to performance materiality.
- Compare. Booked salary expense is higher than expected by more than the threshold.
- Investigate. Management says there was a one-time arrears payment. The auditor asks for the board approval and payroll register showing it, and recalculates the amount.
- Conclude. With the arrears supported, the remaining difference is within threshold, so no further detailed testing of salary totals is needed beyond payroll controls testing.
If management could not support the explanation, the auditor would extend testing, for example by tracing a sample of payroll to employee records. This is also where audit sampling can come in.
When analytical procedures work well, and when they do not
| Works well | Works poorly |
|---|---|
| Stable, predictable, high-volume items | One-off or judgemental items |
| Reliable source data | Data produced by weak controls |
| Disaggregated by month, product or branch | Single annual totals |
| Low-to-moderate risk areas | Areas with a significant risk that needs specific testing |
If the data you use to build the expectation came from the same unreliable system, the test proves little. Check the reliability of the data first.
Documenting the work
Record the expectation, how you built it, the data source, the threshold, the actual result, the explanations and how you verified them. See SA 230 audit documentation for what a reviewer expects. For the types of evidence and how reliable each one is, see audit evidence types and reliability. The audit checklist generator can help you set up planning steps.
Frequently Asked Questions
What are analytical procedures in audit?
They are evaluations of financial information by studying plausible relationships among financial and non-financial data. In plain terms: compare numbers with what you expected and ask why they differ.
Are analytical procedures mandatory?
Using them at planning (risk assessment) and in the final review is required. Using them as a substantive procedure is a choice made when they give better or cheaper evidence than tests of details.
What is the difference between a substantive and an overall-review analytical procedure?
A substantive one is designed to produce evidence about a specific balance or transaction type. The final review is a broad reasonableness check on the whole set of statements and is not meant to add substantive assurance.
What if there is a big unexplained difference?
Do not accept an explanation without evidence. Verify what management says, and if it cannot be supported, perform more detailed testing.
Which ratios do auditors use?
Common ones are gross margin, debtor days, creditor days, inventory days, current ratio and interest cover. Choose ratios that relate to the risk you are testing, not a standard list for every client.
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