Analytical procedures

In this lesson

1. 0:00 Introduction to analytical procedures
2. 1:26 Key financial ratios for audit analysis
3. 3:17 Liquidity and working capital ratios
4. 4:36 Interpreting ratio changes and inconsistencies
5. 6:12 Worked example: revenue and rebate risks
6. 8:04 IFRS 15 revenue recognition and estimates
7. 9:20 Audit procedures for liabilities and discounts

About this lesson

You'll discover why they're essential at every stage of the audit—from planning through to finalisation—and how they act as a catch-all to confirm you've done sufficient audit work. You'll master the key ratios auditors rely on: profitability metrics like return on capital employed, asset turnover, and profit margins; investor ratios such as gearing; and liquidity ratios including current ratio, quick ratio, receivable days, payable days, and inventory turnover. Understanding these ratios and applying common sense to your specific scenario is crucial for spotting what's unusual and what needs investigation. The lesson walks you through how to interpret ratio movements and identify red flags. You'll learn to spot large fluctuations, inconsistencies between what you're told and what the numbers show, and gaps that don't add up—like improved margins when costs and prices haven't changed. Through a worked example on revenue recognition and volume discounts, you'll see how analytical procedures lead to targeted audit questions and further evidence gathering, ensuring your audit work is thorough and defensible.

Duration: 10m