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Audit and Assurance · Assessing audit risks

Analytical Procedures in Audit Planning for ACCA Audit and Assurance

Updated 11 October 2026 · Fact-checked

Analytical procedures in planning are comparisons of financial data, such as ratios and year-on-year trends, used as a risk assessment procedure under ISA 315 (Revised 2019). You calculate key figures, compare them with expectations, spot unusual movements, and link each one to a risk of material misstatement and an audit response.

Understand Analytical Procedures in Planning

Analytical procedures mean evaluating financial information by studying plausible relationships between financial and non-financial data. They include comparing figures across years, comparing actual with budget, comparing with industry averages, and calculating ratios. ISA 520 covers them in detail. ISA 315 (Revised 2019) requires them as part of risk assessment procedures.

At the planning stage the purpose is narrow. You are not proving that a balance is right. You are looking for unusual or unexpected movements that suggest where the financial statements might be misstated. These become the areas of higher risk where you focus your work.

The logic is simple. You form an expectation of what the numbers should look like, using what you know of the client. If revenue rose 20% but the market is flat, that needs an explanation. If the gross margin is stable while costs rose sharply, something may be wrong. A gap between expectation and result is a signal, not a conclusion.

The results are only as good as the data. At planning, figures are often draft or unaudited, and they may be high level. So the evidence is weak and cannot be your main source of assurance. It helps you plan. The same techniques are used later as substantive procedures and at the final review, but the purpose differs each time.

In the exam you must do three things: calculate, interpret, and link. A ratio on its own earns little. The marks come from saying what the movement might mean for the audit, such as possible overstatement of revenue or a going concern concern.

Key rules to remember

Revenue growth
(Current revenue − Prior revenue) ÷ Prior revenue × 100
Compare with industry growth and with changes in costs and receivables.
Gross profit margin
Gross profit ÷ Revenue × 100
An unexpected change may point to cut-off errors, inventory errors or pricing changes.
Operating profit margin
Operating profit ÷ Revenue × 100
Shows whether expenses are moving in line with sales.
Current ratio
Current assets ÷ Current liabilities
Low or falling values may signal going concern or liquidity risk.
Quick ratio
(Current assets − Inventory) ÷ Current liabilities
Use when inventory is slow-moving or hard to value.
Receivables days
Trade receivables ÷ Revenue × 365
Rising days may indicate overstated revenue or irrecoverable debts.
Inventory days
Inventory ÷ Cost of sales × 365
Rising days may indicate obsolete inventory or overvaluation.
Payables days
Trade payables ÷ Cost of sales × 365
Rising days may indicate cash pressure. Unexpectedly falling days may indicate unrecorded liabilities (completeness).
Gearing
Debt ÷ Equity × 100 (or Debt ÷ (Debt + Equity) × 100)
State which version you use. Check for covenant and going concern risk.
Interest cover
Operating profit ÷ Finance costs
Low cover signals difficulty servicing debt.
Core rule
Expectation vs actual → unusual difference → possible risk of material misstatement → audit response
Use this chain for every ratio you comment on.

How to solve Analytical Procedures in Planning questions

Use this method for any question asking you to perform or explain analytical procedures at planning.

  1. 1Read the requirement. Note whether it asks for calculations, risks, or both, and how many marks are available.
  2. 2Pick the ratios that suit the scenario. Use revenue, margins and working capital days as defaults, and add others that match clues given.
  3. 3Calculate for both years using the same formula. Show your formula or working briefly so you can earn method credit.
  4. 4Compare the movement with what you would expect from the scenario, such as growth, new products, loans or changes in policy.
  5. 5For each unusual movement, state the risk of material misstatement and the affected area, using words like overstatement, understatement or going concern.
  6. 6Add the audit response only if asked, for example more testing of cut-off or receivables recoverability.
  7. 7Check that each point has a number, an interpretation and a risk. Drop any point that has no risk link.

Quickest way: Calculate, flag, link

When to use it: Use in Section A OT cases and short Section B parts when time is tight.

  1. Calculate only the three or four ratios that the scenario hints at.
  2. Work out the percentage change for each, rounding sensibly.
  3. Circle the largest or most surprising movements.
  4. For objective questions, match the movement to the most likely cause, such as rising receivables days with possible overstated revenue.
  5. For written answers, write one sentence per risk in the form: figure, change, possible misstatement.

Common mistakes in Analytical Procedures in Planning

  • Calculating ratios but not saying what they mean for the audit.

    Students treat it like a financial management question.

    Fix: Always end each point with the risk of material misstatement or the area needing more work.

  • Saying analytical procedures prove balances are correct.

    Confusing planning use with substantive use.

    Fix: At planning they only identify risk. They give limited evidence and do not confirm figures.

  • Using inconsistent formulas between years or mixing up cost of sales and revenue.

    Rushing under time pressure.

    Fix: Write the formula first and use the same denominator for both years. Receivables days use revenue, inventory and payables days use cost of sales.

  • Assuming every adverse movement is an error.

    Ignoring the business context in the scenario.

    Fix: Check for genuine explanations such as price changes, new contracts or acquisitions, and say the movement needs investigation.

  • Listing the movements without choosing the key ones.

    Students try to comment on everything.

    Fix: Focus on the largest and most relevant changes and tie each to a specific assertion or account.

  • Ignoring the quality of the data.

    Treating draft figures as reliable.

    Fix: Mention that planning figures may be unaudited and that conclusions are therefore tentative.

Worked examples

Example 1

Extracts from the draft financial statements of Delta Co, a manufacturer, are: Revenue $12.0m (prior year $10.0m); Cost of sales $8.4m (prior $6.5m); Trade receivables $2.4m (prior $1.5m). Calculate gross margin and receivables days for both years and explain the audit risks.

Show the solution
  1. Gross profit current year = 12.0 − 8.4 = $3.6m. Margin = 3.6 ÷ 12.0 = 30.0%.
  2. Gross profit prior year = 10.0 − 6.5 = $3.5m. Margin = 3.5 ÷ 10.0 = 35.0%.
  3. Receivables days current = 2.4 ÷ 12.0 × 365 = 73 days.
  4. Receivables days prior = 1.5 ÷ 10.0 × 365 = 54.75, so about 55 days.
  5. Revenue grew 20% ((12.0 − 10.0) ÷ 10.0) but cost of sales grew 29.2% ((8.4 − 6.5) ÷ 6.5), so margin fell by five percentage points.
  6. Risk: the margin fall could arise from cost of sales being overstated (for example closing inventory understated or costs wrongly allocated), or from price cuts or genuine cost increases. It needs investigation.
  7. Risk: receivables days rose by about 18 days. Revenue may be overstated through early recognition or fictitious sales, and receivables may be overvalued if customers are paying slowly.

Answer: Gross margin fell from 35.0% to 30.0% and receivables days rose from about 55 to 73. Key risks are overstated revenue and receivables, possible irrecoverable debts, and misstatement of cost of sales or inventory. The audit should focus on cut-off, receivables recoverability and costing.

Example 2

Echo Co's draft figures show: Current assets $5.6m (inventory $3.0m); Current liabilities $4.0m (prior year: current ratio 1.9). Loans rose from $2.0m to $4.5m and operating profit is $1.2m with finance costs of $0.6m. No prior-year quick ratio or interest cover is given, so those two are assessed as current-year levels only. Calculate the current ratio, quick ratio and interest cover, and explain the going concern implication.

Show the solution
  1. Current ratio = 5.6 ÷ 4.0 = 1.4, down from 1.9.
  2. Quick ratio = (5.6 − 3.0) ÷ 4.0 = 2.6 ÷ 4.0 = 0.65.
  3. Interest cover = 1.2 ÷ 0.6 = 2.0 times.
  4. Loans have risen by $2.5m (4.5 − 2.0), a rise of 125%, so the company has taken on much more debt.
  5. Liquidity appears to have weakened, as the current ratio fell from 1.9 to 1.4. A quick ratio of 0.65 suggests liquid assets may not fully cover current liabilities, so the company may rely on inventory to meet its debts. With no prior-year quick ratio, we can only comment on the current level.
  6. Interest cover of 2.0 looks low, so a modest fall in profit could make interest hard to pay. With no prior-year figure, we cannot say whether it has moved.
  7. Link to audit: these draft figures point to a possible going concern risk that needs investigating, not a proven problem. Also consider possible breach of loan covenants, completeness of liabilities and disclosure, and valuation of inventory.

Answer: Current ratio 1.4, quick ratio 0.65 and interest cover 2.0 times. Combined with a 125% rise in loans and a fall in the current ratio, these indicate a possible going concern risk that the auditor should investigate. They do not show that the company is failing, because the figures are draft and high level. The auditor should follow up by reviewing loan agreements for covenants, testing inventory valuation and gathering more information on cash flow and financing.

Exam tips

  • Always give the figure, the movement and the risk. Calculation alone usually earns only part of the marks.
  • Show formulas and workings in Section B constructed response questions, where method earns marks. In Section A OT cases each answer is all or nothing, so check which denominator each ratio uses.
  • Link ratio movements to specific accounts and assertions, such as occurrence of revenue or valuation of receivables.
  • Use scenario clues. Mention new loans, acquisitions or price changes when explaining a movement, but say it needs investigation.
  • Be clear that planning analytics identify risk and are not strong evidence on their own.

Analytical Procedures in Planning in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Analytical Procedures in Planning: frequently asked questions

Are analytical procedures compulsory at the planning stage?

Yes. ISA 315 (Revised 2019) lists analytical procedures among the risk assessment procedures the auditor performs. They help identify unusual items and areas of higher risk before detailed work is planned.

Which ratios should I calculate in the AA exam?

Start with revenue growth, gross margin, operating margin, receivables, inventory and payables days, current ratio and gearing. Choose those that match the clues in the scenario rather than calculating everything.

What is the difference between planning and substantive analytical procedures?

At planning, they identify risk using high-level data and give limited assurance. As substantive procedures, they are designed to obtain audit evidence about a balance, so expectations must be more precise and the data more reliable.

Do I need to name the ISA in my answer?

It is helpful to refer to ISA 315 for risk assessment and ISA 520 for analytical procedures, but marks come mainly from the analysis and the risk link. Do not spend time reciting paragraph numbers.