Abstract There is significant evidence that preliminary analytical review procedures, i.e., procedures using annual financial statement data, are being used by many auditors. These procedures appear to utilize simple decision rules, and are probably used primarily for audit planning. However, it may also be that auditors are using preliminary analytical review procedures as substantive evidence, and thereby reducing the extent of other, more detailed substantive tests. The purpose of this study is to investigate the appropriateness of that use of preliminary analytical review procedures, by testing their reliability and effectiveness using simulation techniques. Our overall conclusion is that preliminary analytical review procedures probably do not provide a reliable and effective basis for reducing the extent of other, more detailed substantive tests in most cases, and should not be used for that purpose.
Loebbecke et al. (Sun,) studied this question.