Abstract
This study aims to explore the application of analytical procedures (AP) as a major external auditing procedure in the developing country context of Jordan, a context characterised by the prevalence of closely held businesses, and limited demand for an external audit of high quality (Abdullatif, 2016; Almarayeh, Aibar-Guzman, & Abdullatif, 2020). To do so, the researchers conducted semi-structured interviews with twelve experienced Jordanian external auditors. The main issues covered are the detailed use of AP as an audit procedure and the most significant issues that may limit the effectiveness and reliability of this procedure in the Jordanian context. The main findings of the study include that AP are generally used and favoured by Jordanian auditors, despite their recognition of several problems facing the application of AP, and potentially limiting its reliability and effectiveness. These problems include weak internal controls of some clients, low quality of data provided by some clients, a lack of availability of specialised audit software for many auditors, and a lack of local Jordanian industry benchmarks that can be used to develop expectations necessary for the proper application of AP. The study recommends the establishment of such industry benchmarks, along with better monitoring by the regulatory authorities of the quality of company data, and increasing the efforts of these authorities on promoting the auditors’ use of specialised audit software in performing AP
Highlights
Analytical procedures (AP) are an important type of external audit evidence
The main problems that make the application of AP less reliable are the limited effectiveness of some clients’ internal controls (Int. 1, Int. 2, Int. 4, Int. 5, Int. 7, Int. 8, and Int. 9), the lack of availability of specialised software to use in analysing data for AP purposes (Int. 4, Int. 5, Int. 9, Int. 10, Int. 11, and Int. 12), the limited quality of data provided by some clients (Int. 1, Int. 2, Int. 3, Int. 4, Int. 5, Int. 9, Int. 10, and Int. 11), and the lack of local industry benchmarks that can be used in developing reliable estimates to be used for comparison with the clients’ financial statement data
This study aims at exploring the application of AP by Jordanian auditors
Summary
Analytical procedures (AP) are an important type of external audit evidence. Using them, auditors can analyse meaningful trends and relations for financial and related non-financial data by comparing actual data with data from budgets, forecasts, industry averages, and previous entity data (Porter, Simon, & Hatherly, 2014). AP are in certain circumstances more effective and efficient than other substantive auditing tests (Hirst & Koonce, 1996), especially in the cases of large and varied data and when there is minimal risk of material misstatement in the financial statements (Appelbaum, Kogan, & Vasarhelyi, 2018). The importance of AP as an external audit procedure has increased during the COVID-19 pandemic given the difficulties involved in performing other substantive tests due to the cost and time involved and the availability of much evidence in the form of emails, in addition to the expected decline in audit fees due to pressure from clients facing decreasing income due to the pandemic (Albitar, Gerged, Kikhia, & Hussainey, 2021)
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