Auditors perform analytical procedures during the planning and testing phases of an audit, to gather sufficient appropriate evidence. Auditing standards describe analytical procedures as a procedure to evaluate financial information through analysis of plausible relationships (e.g. examination of trends and ratios) among both financial and non-financial data; an investigation if necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. Analytical procedures can facilitate an effective audit by helping the auditor understand the entitys business, directing attention to high-risk areas, identifying audit issues that might not be otherwise apparent, providing audit evidence and assisting in the evaluation of audit results. Analytical procedures are commonly used to gather substantive evidence because they are effective at detecting misstatements. Three types of analytical procedures commonly used are trend analysis, ratio analysis and reasonableness analysis.

Required:

1. Describe the analytical procedures that can be used to test the following revenue-related accounts in the revenue business process:
   1. Revenue
   2. Accounts receivable, impairment of accounts receivable, and bad debt expense
   3. Sales returns and allowances, and sales commission

2. For each of the revenue-related accounts mentioned in (a), explain the potential misstatements that could be detected by the analytical procedures identified.

3. Explain how analytical procedures are useful to the auditor during:
   1. The risk assessment stage of the audit;
   2. The substantive procedures stage of the audit; and
   3. Near the end of the audit.

4. Explain the possible reasons for the following significant changes in relationships:
   1. The rate of inventory turnover has declined from the prior years rate; and
   2. The number of days sales in account receivables has increased over the prior year.