Final answer:
In substantive analytical procedures, auditors develop expectations using the client's records or external data, and compare them with the client's reported figures to detect potential misstatements, without management approval.
Step-by-step explanation:
Understanding Substantive Analytical Procedures in Auditing
When conducting a substantive analytical procedure, auditors develop an expectation or estimate using data in the client's records or data from reliable outside sources, and then compare the expectation with the client's recorded amount. This process is crucial for auditors to assess the reasonableness of the financial information provided by the client, and forms a part of the overall audit strategy to ensure the financial statements do not contain material misstatements. It involves critical analysis, estimation, and comparison techniques.
In this process, the auditors will take into account empirical evidence, which includes data obtained from direct observations and scientifically gathered data, and possibly employ statistical models to develop their expectations. The criteria for judging an expected result may not necessarily be as strict as for an unexpected result, but it must still be based on reasonable assumptions and data sources.
It's important to recognize that these procedures do not require prior approval by management, and auditors must maintain independence in their judgment and evaluation of the client's financial information. Adherence to a strong code of ethics and understanding of proper statistical procedures are critical in this process. Therefore, auditors use their professional judgment, along with a systematic approach to content analysis and validation against quantitative data, to ensure accuracy and reliability in their analytical procedures.