Presidential Scholars Theses (1990 – 2006)


Open Access Presidential Scholars Thesis

First Advisor

Troy A. Hyatt


Auditing, Analytical review; Audited financial statements;


In order to comply with generally accepted auditing standards (GAAS), auditors are required to gather sufficient, competent evidence to support their opinion concerning the amounts and disclosures in the client's financial statements. Auditors have numerous ways by which to obtain such evidence, and one whose use is continually increasing--largely due to its cost-effectiveness--is analytical procedures.

Analytical procedures (APs) are defined as "evaluations of financial information made by a study of plausible relationships among both financial and non-financial data" (SAS No. 56). For non-auditors, an example of an AP is using historic gross profit percentages to determine if the gross profit percentage for the year under audit appears reasonable. Professional guidance on the use of APs originated in 1978 when they were recommended for use in audits by the Auditing Standards Board. Guidance culminated with the issuance of Statement on Auditing Standards No. 56 (SAS No. 56), which mandates the use of APs in both the planning and final review stages of audits.

Many research studies have investigated the use of APs. The methodologies employed range from surveys of practicing auditors (see Ameen and Strawser 1994; Biggs and Wild 1984; Tabor and Willis 1985) to case studies in which auditors were asked to utilize APs (see Heintz and White 1989; Holder 1983) to interviews with auditors from the Big Six firms (see Hirst and Koonce 1996).

In one of the more recent studies, Ameen and Strawser (1994) surveyed practicing auditors to determine the current use (as of 1991) of APs during audits and arrived at several major conclusions. In their research, Ameen and Strawser (1994) found that auditors tended to use simpler APs, such as comparison to prior year's balance or judgmental trend analysis, rather than their more sophisticated counterparts, such as time-series analysis and regression analysis, when performing audits. They also found that the use of APs constituted nearly onethird of total audit hours for smaller firms; the ratio increased to nearly one-half for Big Six firms. Also, Ameen and Strawser's research identified two major reasons for the heavy reliance on APs: increased fee pressure felt by public accounting firms and increased use of microcomputers in audits. It has been over 5 years since their data was gathered. Due to increased competition and exposure to liability litigation, auditors have needed to utilize procedures such as APs that would cost-effectively increase the effectiveness and efficiency of their audits. Also, the use of microcomputers during audits has continued to increase. Therefore the level of use of APs would be expected to increase.

In addition to updating previous research and identifying the current level of use of APs, this research was designed to explore new issues. Participating auditors were asked to identify the level of use of specific APs during each of the three stages of an audit identified by SAS No. 56: planning, substantive testing, and final review. Previous research (Ameen and Strawser 1994) did not separate the stages when questioning the level of use of APs. Second, the types of APs provided to the respondents were revised and expanded. Third, the line of questioning was altered in an attempt to gather information as to the reasons why auditors choose to use various types of APs-primarily why auditors continue to choose simpler APs over more sophisticated APs even though previous research (e.g., Kinney 1978; Knechel 1986; Wilson and Colbert 1989) has shown that sophisticated APs are more effective during audits. Finally, this study investigated what factors have influenced the use of APs over the past five years.

The results of this research are of interest for standard setters, researchers, practitioners, and educators. For standard setters and researchers, this study provides an update to previous research and a more in-depth analysis of the use of APs in the various stages of an audit. It also researches topics suggested by previous researchers (Ameen and Strawser 1994, Hirst and Koonce 1996). For practitioners, it provides a better understanding of the current use of APs so it may be determined if more guidance is needed. For educators, this research may be used to complement textbook discussions of APs by illustrating how much and when different types of APs are used.

Date of Award



Department of Accounting

Presidential Scholar Designation

A paper submitted in partial fulfillment of the requirements for the designation Presidential Scholar

Date Original


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1 PDF file (36 pages)

Date Digital



©2017 Rebecca Hutchinson





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Accounting Commons