Analytical procedure results as substantive evidence;

              Analytical Procedure Results as Substantive Evidence*
William R. Kinney, Jr.
Christine M. Haynes
University of Texas at Austin
Generally Accepted Auditing Standards (GAAS) allow two basic types of evidence to satisfy the third standard of fieldwork. These are analytical pro-cedure results and tests of details of transactions and balances. GAAS is clear that the third standard can be met with any combination of the two that the auditor deems to be appropriate and GAAS makes no qualitative or "com-petency" distinction between them. Yet, analytical procedure results are rou-tinely subject to several biases not present in tests of details. In this paper we clarify conceptual differences that may lead to an overassessment of the competency or validity of evidence provided by analytical procedures.
Clarification of the biases inherent in analytical procedures is important given the increased emphasis on analytical procedures in professional stan-dards (e.g., SAS No. 39, 47, and 56 and SAARS No. 1), and its increased use in practice [Tabor and Willis, 1985]. Auditors may be substituting inferior ev-idence for tests of details with an attendant increase in achieved audit risk.
Below we review the history of analytical procedures and their regulation, analyze the essential features and risks of analytical procedures, and demon-strate several sources of bias in their use as substantive evidence. Finally, we provide some suggestions for research on analytical procedures and a sug-gestion for a change in standards.
1. History of Analytical Procedures in Auditing
Essentially, analytical procedure results as substantive evidence are eval-uations of the reasonableness of the assumption of no material misstatement in aggregate recorded amounts, given the auditor's other knowledge. Ana-lytical procedures do not encompass examination of details supporting the validity of particular items comprising a recorded population. Thus, the sub-stantive validity of any item or group of items is not determined directly.
The origin of analytical procedure results as substantive evidence is un-clear. Stringer and Stewart [1986, p. 15] cite a Deloitte Haskins & Sells audit
*We acknowledge the helpful comments of Urton Anderson, Sarah Bonner, Vicky Heiman, Lisa Koonce, Linda McDaniel and Garry Marchant, and we wish to thank Larry Logan of Deloitte & Touche for providing a technical document.
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