The audit procedures described in this section provide evidence relating to management
assertions of accuracy and completeness. Auditors often precede substantive tests
of details with an analytical review of account balances. In the case of the revenue
cycle, an analytical review will provide the auditor with an overall perspective for
trends in sales, cash receipts, sales returns, and accounts receivable. Analytical procedures
do not necessarily require computer technology. For example, the auditor may
compare reported sales for the quarter with those for the same period in previous
years. Ratio analysis may be used to compare total sales to cost of goods sold, sales
to accounts receivable, and allowance for doubtful accounts to accounts receivable.
Significant variations in account balances over time, or unusual ratios, may signify
financial statement misrepresentations. However, analytical procedures can provide
assurance that transactions and accounts are reasonably stated and complete and may
thus permit the auditor to reduce substantive tests of details on these accounts.