The use of analytical procedures in the United Kingdom

Abstract

Statement of Auditing Standard (SAS) 410 requires auditors toapply analytical procedures at the planning and overall review stages of the audit. This paper reports on a questionnaire completed by audit partners in the United Kingdom (UK), investigating their usage of analytical procedures in the external audit. Results suggest that analytical procedures are used extensively in practice, particularly by Big 6 and large firms. However, simple techniques continue to dominate practice, particularly in smaller firms, and are considered effective by UK practitioners. This is surprising given that increased use of computers, which should make sophisticated techniques more cost-effective, is rated highly as an influence on the increased use of analytical procedures. The risk-based approach to audit is perceived by most respondents as the main factor promoting usage of analytical techniques. Increasingly, practitioners are relying on the results of analytical techniques to justify lower levels of detailed testing.The results of this survey indicate that, increasingly, auditors are willing to rely on the results of analytical procedures, when favourable, to justify a reduction in levels of detailed testing, consistent with drives for greater audit efficiency. The audit environment is perceived to influence the balance between detailed testing and analytical procedures -the length of engagement and the client's internal control structure are factors which have a strong influence on this balance. Whilst technology is perceived as an important influence on the usage of analytical procedures, this research demonstrates that simple techniques continue to dominate, and are perceived as effective. There is some usage of statistical techniques, particularly at the substantive testing stage, and by Big 6 firms. Big 6 auditors view lack of expertise as the primary impediment to greater usage of statistical techniques, indicating a potential skills gap.In summary, our results demonstrate that analytical procedures play an increasingly important role in the external audit. Further research exploring their use at the substantive testing stage, including the role of external and non-financial information, would be useful. In addition, where statistical techniques are applied in practice, issues relating to their effectiveness and efficiency could be examined. PRIOR RESEARCHFactors which influence the use of analytical procedures in practice are of interest to practi-

An Experimental Study of Auditor Analytical Review Judgements

“…Our results further the understanding of auditors' configural information processing and suggest that there is a need for auditing standards to address the issue. Thirdly, this study provides evidence, consistent with other recent work, of a tendency towards conservatism in the way in which auditors carry out AR (Biggs et al, 1988;Cohen and Kida, 1989;Cohen, 1994;and Mulligan and Inkster, 1999). This is significant given the argument that the increased use of AR enhances audit efficiency (see e.g.…”

“…This difference of emphasis may reflect an attitude of conservatism on the part of auditors in that they are reluctant to reduce the planned audit scope based on the strength of AR results. Recent work by Mulligan and Inkster (1999) strengthens the impression of a conservative attitude towards AR use on the part of auditors. If auditors adopt a generally conservative attitude towards the use of AR then posited efficiency gains from AR use are problematic.…”

“…These findings are consistent with those of Biggs et al (1989), and of Cohen and Kida (1989), both of whom also provide evidence of conservatism in AR judgement. Mulligan and Inkster (1999) found that the AR objective of reducing the level of detailed testing is not correlated with the use of analytical procedures at the substantive testing stage . .…”

“…These authors noted that auditors frequently reduced the level of detailed testing when AR results were favourable but that they sought to corroborate these results with other evidence prior to doing so. Mulligan and Inkster (1999) concluded that:…”

Financial Statement Transparency and Auditor Responsibility: Enron and Andersen

“…This is in con ict with results from prior research (e.g. Mulligan and Inkster, 1999;Mahathevan, 1997).…”