Final answer:
Analytical procedures are used during the planning phase of the audit to analyze financial data and identify potential risks. These procedures help auditors understand the client's business and determine further audit procedures. They can also be used during the completion phase, but their main purpose is in the planning phase.
Step-by-step explanation:
Analytical procedures must be used during the planning phase of the audit. These procedures involve the analysis of financial data and other relevant information to identify potential risks and assess the reasonableness of financial statements. By conducting analytical procedures, auditors can gain a better understanding of the client's business and financial performance, which helps in determining the nature, timing, and extent of further audit procedures to be performed.
For example, auditors may compare current financial data with prior year figures, industry averages, or budgeted amounts to identify any significant differences or unusual trends. They may also use ratio analysis, such as calculating the current ratio or profitability ratios, to assess the financial health of the client. These analytical procedures provide auditors with preliminary evidence about the reliability of the client's financial statements.
While analytical procedures can be performed during the completion phase of the audit as well, their primary purpose is to assist auditors in planning the audit procedures and identifying areas that require further audit attention.