SA 520 Analytical Procedures explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
SA 520 deals with two uses of analytical procedures: as substantive tests of recorded figures, and as a final overall review before the auditor concludes. It tells the auditor how to build an expectation, how much of a difference can be accepted and what to do about a difference that is too large.
SA 520, as effective for audits of financial statements for periods beginning on or after 1 April 2010, applies to all analytical procedures used for these two purposes. ICAI may revise standards, so check icai.org for the current text. Month-wise comparisons of the kind built through MIS reporting are the raw material for these procedures.
Analytical procedures mean evaluating financial information by looking at plausible relationships between financial and non-financial data. When used as substantive procedures, the auditor must judge their suitability, test the reliability of the data, form an expectation that is precise enough, and set the difference that can be accepted without further work. Near the end of the audit, the auditor performs an overall review. Unexpected differences must be investigated by asking management and doing further procedures.
What SA 520 covers (paragraphs 1-4)
The standard covers analytical procedures as substantive procedures and as procedures near the end of the audit. Using them as risk assessment procedures is dealt with in SA 315, and SA 330 covers the choice of procedures in response to assessed risks (paragraph 1). The two objectives are to obtain relevant and reliable evidence when using substantive analytics, and to perform an end-of-audit review that tests whether the statements are consistent with the auditor's understanding of the entity (paragraph 3).
Paragraph 4 defines analytical procedures as evaluations of financial information through analysis of plausible relationships among financial and non-financial data, including the investigation of fluctuations that are inconsistent with other information or differ significantly from expected values. The choice of procedures and level of application is a matter of professional judgement.
The application material lists what the auditor can compare against: figures for earlier periods, budgets and forecasts, the auditor's own expectation (for example of depreciation), and industry information (A1). Relationships include gross margin percentages and the link between payroll costs and the number of employees (A2). Methods range from simple comparisons to advanced statistical analysis, and may be applied to whole statements or to individual elements (A3).
Substantive analytical procedures (paragraph 5)
When analytics are used alone or with tests of details as substantive procedures under SA 330, the auditor must do four things.
| Step | What it means | Paragraph |
|---|---|---|
| Suitability | Decide whether the analytic suits the assertion, given the assessed risk and any tests of details | 5(a), A6-A10 |
| Reliability of data | Evaluate the data behind the expectation: source, comparability, nature and relevance, and the controls over how it was prepared | 5(b), A12-A14 |
| Expectation | Develop an expected figure or ratio and judge if it is precise enough to catch a material misstatement | 5(c), A15 |
| Acceptable difference | Decide the difference from expectation that can be accepted without further investigation | 5(d), A16 |
Suitability
Substantive analytics work better for large volumes of transactions that are predictable over time, on the assumption that relationships continue unless something has changed (A6). Even a simple model can be strong: if the headcount and pay rates are fixed through the year, total payroll can be estimated closely, which reduces the need for tests of details (A7). The persuasiveness differs by type. Predicting rent from the number of flats, rental rates and vacancy can be persuasive, while comparing gross margin percentages to confirm revenue gives weaker evidence and works as corroboration alongside other procedures (A8). If controls over sales order processing are weak, tests of details are likely to be preferred for receivables (A9). Analytics can also be paired with details; an ageing analysis alongside testing of subsequent receipts supports the valuation of receivables (A10).
Reliability of data
Four factors are named (A12): where the information comes from (independent outside sources are more reliable); whether it is comparable (broad industry data may need adjusting for a specialised business); its nature and relevance (for instance, whether budgets are results expected or goals to be achieved); and controls over its preparation. Where useful, the auditor may test the operating effectiveness of controls over information used, or consider whether the information has itself been subjected to audit testing (A13). These factors apply equally to work at an interim date (A14). Management's own analytical data may be used if the auditor is satisfied it is properly prepared (A5).
Precision and the acceptable difference
Precision depends on how accurately results can be predicted (gross margins are steadier than discretionary spend such as advertising), how far the data can be broken down (analytics on sections of an operation work better than on the whole entity) and whether the data, financial and non-financial, is available (A15).
The acceptable difference is influenced by materiality and by the desired level of assurance. The higher the assessed risk, the smaller the difference that can be accepted without investigation (A16). The text prints no fixed percentage, so none should be assumed.
Analytics near the end of the audit (paragraph 6)
Near the end the auditor performs analytical procedures to help form an overall conclusion on whether the financial statements are consistent with the auditor's understanding of the entity. Their conclusions are meant to corroborate what was found in the audit of individual items (A17). They may reveal a risk not recognised earlier, in which case SA 315 requires the assessment of risks to be revised and planned procedures modified (A18). They may resemble the analytics used at risk assessment stage (A19).
Investigating differences (paragraph 7)
If analytics show fluctuations or relationships inconsistent with other information, or differing from expectation by a significant amount, the auditor must ask management and obtain suitable evidence about the answers, and perform other procedures as necessary. Management's answers are tested against the auditor's understanding of the entity and other evidence (A20). If management cannot explain, or the explanation and the evidence do not hold up, further procedures are needed (A21).
Illustrative example
Kestrel Packaging Pvt Ltd is an invented company; all figures are illustrative. For payroll, the auditor takes 85 employees on the headcount register, multiplies by the contracted monthly pay and adjusts for known joiners and leavers, arriving at an expected cost of Rs 4.20 crore against a recorded Rs 4.36 crore. The auditor had already decided, considering materiality and assessed risk, that a gap of Rs 8 lakh could be accepted. The Rs 16 lakh gap exceeds it, so the auditor asks management, who point to an arrears payment under a revised wage settlement. The auditor reads the settlement and the payment records, and the gap is explained. For gross margin, the recorded margin fell from last year while the price list and material costs show no matching change; the auditor tests the cost of sales for cut-off and inventory costing, because the explanation offered was not supported.
Documentation and links
SA 520 has no separate documentation paragraph. The expectation, its basis, the acceptable difference, the results and follow-up are recorded under SA 230. For the broader evidence framework see SA 500, and for how analytics feed a conclusion on going concern see SA 570. The text prints no modifications compared with the international standard.
Need help with analytics before the audit?
Many differences an auditor raises can be answered in advance if your monthly figures are compared with the previous year and with budget. TaxClue's MIS reporting work can set up the month-wise comparisons and margin and payroll ratios that give your accounts team ready explanations.
Key takeaways
- Analytical procedures compare figures against expectations built from plausible relationships.
- The auditor tests the reliability of the data used to build the expectation.
- The acceptable difference falls as assessed risk rises; no fixed percentage is printed.
- An overall review near the end checks that the statements fit the auditor's understanding of the business.
- Unexplained or poorly supported differences lead to further procedures.
Read next
- SA 500: audit evidence
- SA 330: responses to assessed risks
- SA 530: audit sampling
- SA 570 part 1: going concern
Disclaimer: Based on the Standards on Auditing and quality standards issued by the Institute of Chartered Accountants of India, in the versions named in the article, and ICAI's announcement of 31 March 2026 on SQM 1 and SQM 2, as consulted on 3 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org. This article is general information, not legal advice; check the official text before acting.