Audit and Assurance · Audit planning and documentation

Analytical Procedures in Audit Planning for ACCA Audit and Assurance

Updated 11 October 2026 · Fact-checked

Analytical procedures at planning compare financial and non-financial data, such as this year against last year, budget or industry, to spot unusual movements. You calculate ratios, explain what changed, and link each oddity to a risk of material misstatement. This focuses audit work on higher-risk areas.

Understand Analytical Procedures in Planning

Analytical procedures are evaluations of financial information through analysis of plausible relationships between financial and non-financial data. They include comparisons, ratios, trends and the investigation of fluctuations that look inconsistent with other information. ISA 520 deals with their use as substantive procedures and in the overall review near the end. ISA 315 requires them as a risk assessment procedure at planning.

At the planning stage, the purpose is different from testing. You are not trying to prove a balance is right. You are trying to find where things look odd, so you know where misstatement could be. Planning analytical procedures are usually done at a high level, using draft or interim figures, so they give only a rough indication.

You compare the current year with prior years, with budget, with industry averages, and with what you expect from non-financial data such as headcount or units sold. Where the numbers do not move as you would expect, there may be an error, fraud, a change in accounting policy, or a genuine business change. You must investigate before you decide.

The key skill is to interpret, not just calculate. A gross margin falling from 40% to 32% is only useful if you say why it matters: possible understated revenue, overstated cost of sales, inventory errors or cut-off problems. Then you say what the audit team will do about it.

Do not confuse the three uses. At planning they identify risk. During the audit they can be substantive procedures, which give evidence on assertions. At completion they form an overall review of the financial statements. Only the last two give audit evidence in the main.

Key rules to remember

Gross profit margin: Gross profit ÷ Revenue × 100; A fall may point to understated revenue, overstated cost of sales, or inventory errors.
Operating profit margin: Operating profit ÷ Revenue × 100; Compare with gross margin to see if the change comes from expenses.
Current ratio: Current assets ÷ Current liabilities; Low or falling values raise going concern and liquidity questions.
Receivables days: Trade receivables ÷ Revenue × 365; A rise may suggest irrecoverable debts, fictitious sales or cut-off errors.
Inventory days: Inventory ÷ Cost of sales × 365; A rise may suggest obsolete or overstated inventory.
Payables days: Trade payables ÷ Cost of sales × 365; A fall may suggest unrecorded liabilities; a sharp rise may signal cash pressure.
Gearing: Debt ÷ Equity × 100 (or Debt ÷ (Debt + Equity) × 100); State which version you use. Check covenants and going concern.
Percentage change: (Current − Prior) ÷ Prior × 100; Use it to quantify each movement before commenting.

How to solve Analytical Procedures in Planning questions

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

1Read the scenario and note the business, the year-on-year facts and any non-financial data given.
2Calculate the percentage change and the relevant ratios for each year. Show the formula and the figures.
3Compare with prior year, budget or industry. Mark the items that moved most or against expectation.
4Interpret each movement. Give one or two plausible causes, including a possible misstatement and a genuine business reason.
5Link each issue to a risk of material misstatement and the financial statement area or assertion affected.
6State the audit response, such as more substantive testing, a senior on the area, or an expert.
7Note the limits: high-level data, draft figures, and that explanations need corroboration.

Quickest way: Figure, Cause, Risk, Response

When to use it: Use this when you have limited time in a Section C or OT case question and the ratios are already given or easy to compute.

Pick the three biggest movements first. Ignore small ones.
Write the movement with a number, for example margin down from 40% to 32%.
Add one likely cause and the misstatement risk, for example cut-off or inventory.
Add a short audit response in the same line.
Do the next movement. One line per issue keeps your answer tidy and marks easy to award.

Common mistakes in Analytical Procedures in Planning

Calculating ratios but giving no interpretation.
Students feel the calculation is the answer.
Fix: After each ratio write what changed, why it might have happened and what risk it creates.
Saying analytical procedures at planning give conclusive evidence.
Confusing planning use with substantive use.
Fix: Say they identify risk and direct work. Evidence comes from later procedures, including substantive analytical procedures.
Only giving error as the cause.
Students assume every unusual number is a misstatement.
Fix: Give both a business reason, such as a price change, and a misstatement reason, then say you would investigate.
Using the wrong denominator in days ratios.
Mixing revenue and cost of sales.
Fix: Receivables use revenue. Inventory and payables use cost of sales. State the formula.
Listing risks without a link to the audit response.
Students stop once the issue is spotted.
Fix: Finish each point with a specific action, for example test post year-end sales for cut-off.
Treating all movements as equally important.
Wanting to cover every figure.
Fix: Rank by size relative to materiality and focus on the largest and the most unexpected.

Worked examples

Example 1

Planning for Kaya Ltd shows: revenue $4,000,000 (last year $3,600,000); cost of sales $3,000,000 (last year $2,160,000); trade receivables $800,000 (last year $600,000). Calculate gross margin and receivables days for both years and explain the audit risk.

Show the solution

Current gross profit = 4,000,000 − 3,000,000 = 1,000,000. Margin = 1,000,000 ÷ 4,000,000 = 25%.
Last year gross profit = 3,600,000 − 2,160,000 = 1,440,000. Margin = 1,440,000 ÷ 3,600,000 = 40%.
Current receivables days = 800,000 ÷ 4,000,000 × 365 = 73 days.
Last year receivables days = 600,000 ÷ 3,600,000 × 365 = 60.8 days, about 61 days.
Interpretation: revenue rose 11.1% but cost of sales rose 38.9%, so margin fell by 15 percentage points. Possible causes are overstated cost of sales, understated revenue, inventory errors, or genuine price cuts or cost rises.
Receivables days rose by about 12 days. Possible causes are irrecoverable debts, weaker credit control, or revenue recorded early. This links to valuation of receivables and cut-off.
Response: test sales and purchases cut-off, review the year-end inventory count, review the aged receivables list and post year-end receipts, and discuss pricing and cost changes with management.

Answer: Gross margin fell from 40% to 25%. Receivables days rose from about 61 to 73. The risks are misstatement of cost of sales, inventory, revenue cut-off and receivables valuation, so more substantive work is planned on those areas.

Example 2

An auditor reviews Delta plc's draft figures: current assets $900,000 and current liabilities $1,200,000 (last year $1,000,000 and $800,000). Bank loan is $2,000,000 and equity $1,000,000 (last year $1,200,000 and $1,300,000). Calculate the current ratio and debt to equity for both years and state the audit implication.

Show the solution

Current ratio this year = 900,000 ÷ 1,200,000 = 0.75.
Current ratio last year = 1,000,000 ÷ 800,000 = 1.25.
Debt to equity this year = 2,000,000 ÷ 1,000,000 × 100 = 200%.
Debt to equity last year = 1,200,000 ÷ 1,300,000 × 100 = 92.3%.
Interpretation: liquidity has worsened to below 1 and borrowing has risen sharply relative to equity. Equity has also fallen, which may suggest losses.
Risk: going concern, possible breach of loan covenants, and the need for correct classification and disclosure of borrowings.
Response: obtain management's cash flow forecasts, review the loan agreement and covenants, check post year-end events and assess the going concern disclosures.

Answer: Current ratio fell from 1.25 to 0.75 and debt to equity rose from 92.3% to 200%. This raises going concern and covenant risk, so the auditor plans extra work on going concern, loan terms and disclosure.

Exam tips

In OT questions, remember that planning analytical procedures identify risk; they do not give conclusive evidence.
In Section C, show formulas and figures even if ratios are given, then spend most of your time on interpretation.
Always give both a possible error and a possible genuine reason, then say you would investigate.
Tie every issue to a specific assertion or account balance and an audit response to earn the full marks.
Check the data you are given: if the question gives non-financial data such as units sold or staff numbers, use it to test whether the figures are reasonable.

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

What is the difference between planning and substantive analytical procedures?

Planning analytical procedures are a risk assessment tool. They are high level and show where misstatement may exist. Substantive analytical procedures are designed to gather evidence on assertions, so the data must be reliable and the expectation precise.

Which standard covers analytical procedures?

ISA 520 covers analytical procedures as substantive procedures and in the overall review at the end. ISA 315 requires them as a risk assessment procedure when planning.

Which ratios should I use in the exam?

Use those that fit the data: margins, receivables, inventory and payables days, current ratio and gearing. Pick the ratios that show the biggest or most unusual movement and explain them.

What if my analytical procedures show no unusual movement?

That does not prove there is no misstatement. Errors or fraud may be hidden by offsetting items or consistent bias. You still need to consider the risk assessment from other procedures.