Explanation Analytical Procedure: Analytical procedure is a method by which standard balances are compared with actual balances. The standards are developed at the time of planning the audit and compared at the time of review of the audit. The five steps involved with the use of preliminary analytical procedure are: Expectation development: This is the first and foremost step. It involves developing an expectation and anticipating balances based on evaluating relationships, prior year balances, appropriate information like inventory, production. Define major difference: A maximum acceptable difference called threshold should be defined. It should be done before computing any difference to avoid bias and prevent an auditor from justifying the variance...

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Chapter 4, Problem 15RC

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State the five steps involved with the use of preliminary analytical procedures.

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