Analytical procedures are techniques used in financial auditing and analysis to evaluate financial information through comparison and analysis. They can be used at different stages of an audit, including planning, interim review, and final review. Analytical procedures help auditors gain insights into an organization's financial performance and identify potential financial statement issues, improving audit efficiency and quality of financial reporting. They also help assess risks of material misstatements and provide valuable information to management and stakeholders.

1. Analytical procedures
Analytical procedures are techniques used in financial auditing and
analysis to evaluate financial information through comparison and
analysis.
Analytical procedures in an audit are a powerful tool that can help
auditors gain insights into the financial performance of an organization. It
can be used at different stages of an audit, including planning, interim
review, and final review.

2. Importance
1. Enhanced Efficiency: It helps auditors and analysts quickly identify potential financial statement issues. By
identifying potential risks early in the audit or analysis process, auditors and analysts can plan their work
more effectively, improving overall efficiency.
2. Improved Quality of Financial Reporting: It can help identify errors, omissions, or other irregularities in
financial statements. By identifying these issues, auditors and analysts can help to ensure that the financial
statements are accurate and complete.
3. Enhanced Risk Assessment: It helps auditors and analysts to assess the risk of material misstatements in the
financial statements. By identifying potential risk areas, auditors and analysts can develop appropriate audit or
analysis procedures to mitigate those risks.
4. Better Decision Making: It provides valuable information to management, investors, and other stakeholders.

3. How To Perform?
Preliminary analytical procedures involve several steps, including planning, conducting the operations, and evaluating the
results. The following are some general steps for performing analytical methods:
1. Planning: Identify the objective of it, the areas of focus, the financial data required, and the data sources. Consider the
availability and reliability of financial information.
2. Conducting the Procedures: Collect and analyse the financial data using the selected procedures. This may involve
calculating ratios, performing trend analysis, conducting variance analysis, or using other techniques as appropriate.
3. Evaluating the Results: Evaluate the results of the procedures to determine whether they are consistent with expectations.
If the results are unusual, investigate further to determine the cause. Consider the impact of issues on the financial
statements and whether further testing or evaluation is necessary.
4. Documenting the Procedures: Document the procedure performed including the data sources, the techniques used, and
the results. In addition, note any issues identified and the actions are taken to resolve them.
5. Communicating the Results: Communicate the results of the procedures to management, auditors, or other stakeholders,
as appropriate. Resolve any insights or recommendations based on the results of the analytical
methods.

4. Maintenance of Books of Accounts: Section 128 of the
Companies Act, 2013

5. As per Section 128(1), every company must prepare and keep its books of accounts and other relevant
books, financial statements, and papers at its registered office.
As per the second proviso of Section 128(1), all the companies may keep its books of account or other
such relevant paper and books in electronic mode or as prescribed in Rule 3 of Companies (Accounts)
Rules, 2014 Manner of Books of Account to be Kept in Electronic Mode 1. Shall remain accessible in India;
2. Be in original format and complete; 3. Must be in readable format; 4. Information/details received from
the branch office shall not be altered 5. Capable of being displayed in legible form 6. One must keep the
back-up of the books of account in servers physically located in India
Moreover, the company must inform the Registrar of Companies on an annual basis during the filing of financial
statement: 1. the name of the service provider 2. IP address of service provider; 3. location of the service provider
4. where the books of account and other books and papers are maintained on the cloud, such address as provided
by the service provider.

6. Books of Branch Section 128(2) Where a company has a branch office in India or outside India,
it shall be deemed to have complied with the provisions of sub-section (1), if proper books of
account relating to the transactions effected at the branch office are kept at that office and
proper summarised returns periodically are sent by the branch office to the company at its
registered office or the other place referred to in sub-section (1).
Inspection of Books of Accounts- Section 128(3) & (4) Read with Rule of the Companies (Accounts)
Rules, 2014 Any director can inspect the books of account and other relevant books and papers at
business hours only. However, Books of Accounts of a Subsidiary company can be inspected by a person
authorized by the Board of Directors

7. Period for which Books to be preserved: Section 128(5) 1. Not less than 8
Financial Years immediately preceding FY 2. If a company is in existence for less
than 8 years then for such entire years of its existence 3. In case of Investigation,
as directed by Central Government Responsibility of Maintenance of Books of
Accounts- Section 128(6) 1. Managing Director 2. Whole-time Director 3. Chief
Financial Officer 4. Any other Competent and Reliable person as duty charged by
Board.

8. In case of Non-Compliance or Contravention of provisions
mentioned, such managing director, whole-time director in
charge of finance, Chief Financial officer or such other
person of the company shall be punishable with fine which
shall not be less than fifty thousand rupees but which may
extend to five lakh rupees. Does Section 128 of
Companies Act, 2013 apply to Foreign Companies as
well? As per Section 384(3), provisions of Section 128
shall apply to a foreign company to the extent of requiring
it to keep at its principal place of business in India, the
books of account referred to in that section, with respect
to monies received and spent, sales and purchases made,
and assets and liabilities, in the course of or in relation to
its business in India.

9. AUDIT OF SHARE CAPITAL
Share capital means capital raised by the company by issue of shares. This issue of share capital should be audited
to verify the compliance of requirements and provisions of Companies Act.
TRANSFER OF SHARES – AUDITOR’S ROLE AND VERIFICATION
In Share transfer audit, the following has to be verified by auditors. He also plays an important role in verification
of following components in auditing transfer of Shares.
1. Examination of Transfer Forms,
2. Share Transfer Journal,
3. Directors’ Minutes Book,
4. Register of Members,
5. Counterfoils of Share Certificates.
6. Transmission of Shares.

10. 1. Examination of Transfer Forms
1. Application for transfer of shares should be made in a prescribed form, stamped
by the prescribed authority with the date of its presentation.
2. The transfer form should be delivered to the company within 2 months from the
date of presentation and if the shares are ‘Quoted’, the Transfer form should be
delivered to the company before the closing of the Register of Members or within
twelve months from the date of presentation of application to the prescribed
authority, whichever is later.
3. The Transfer form should be duly executed and required stamp duty should have
been paid.
4. The name of company should be correctly mentioned in the form.
5. It is the duty of the company to verify whether the consideration for the transfer
is adequate.
6. If any alteration is made in the form, it should be initialed by the person making
the alteration.
7. The name and the address of the transferee should be recorded in the transfer
form completely.

11. The auditor should bear the above points in mind while
examining the transfer
form.
Verification by the Auditor
The auditor should
1. Cross verify the signature of the transferor in the transfer
form with that of the
original application.
2. Ensure that the transferee is not disqualified from holding
the shares in the
company.
3. He should distinctively mark the transfer forms checked, so
that the same
transfer form is not produced as evidence for supporting
another share transfer.

12. 2. Share Transfer Journal
The auditor should verify the name of the transferor, name and address of
the transferee, the class and the distinctive numbers of the shares transferred that
are recorded in the Share Transfer Journal.
He should also verify that the entries of the transfer journal are duly record
in the Register of Members.
3. Directors’ Minutes Book
The Minutes book should be verified to ensure that all transfers recorded in
the transfer journal are duly authorized. The auditor should also ensure that the
share certificates, issued to the transferees are approved by the directors. This can
be done by comparing the counterfoils of the share certificates with the directors’
Minutes book.

13. 4. Register of Members
The auditor has to ensure that the name of the transferor, transferee and
distinctive numbers of shares transferred are duly recorded in the Register of
Members.
If a transfer is registered without a share certificate, the auditor should
ensure that the company has obtained a letter of indemnity or any other similar
document before registering such transfers.
5. Counterfoils of Share Certificates
If the company issues any share certificate to replace a share certificate that
is destroyed or lost, the auditor should ensure that such issue has been authorized
by the board and the company has obtained a bond of indemnity from the
shareholders.

15. Audit of reserve and surplus

16. 1. Examine Articles of Association: The auditor should examine the Articles of Association to see whether
provision regarding creation of general reserve has been complied with.
2. Verify Mode of Creation: It is the duty of the auditor to ensure that reserve is created only out of profits of the
company.
3. Verify Purpose of Creation: Auditor should ensure that general reserve is created for the best interest of the
company.
4. Disclosure in Balance Sheet: He should examine that reserve amount is properly shown in the Balance Sheet.
When reserve amount is invested in securities, he should verify that investments are shown on the assets side of the
Balance Sheet.
5. Examine Minutes of Board of Directors: Auditor should examine Minutes of Board of Directors meeting to
verify directors approval for utilizing the reserve amount.
5. Utilization of Reserve: Lastly, the auditor has to ensure that reserve is utilized for the special purpose for which
they are created.
Verify amount Invested: He should ensure that the amount set aside is invested in guilt-edged securities known as
Sinking Fund Investment which earns a reasonable rate of return.
2. Verify Investment Register: The auditor should physically verify the securities with the Investment Register.
3. Disclosure to Shareholders: It is the duty of the auditor to disclose the fact to the shareholders that
secret reserve has been created. If he fails to do so, he will certify a false statement which will not exhibit a
true and fair view of the state of affairs of the company.

18. Audit of debenture
DebenturesThe auditor should take following steps for the audit of allotment of
debentures.i) The auditor should examine Articles of Association to verify that the
company has power to borrow funds through issue of debentures.ii) The auditor should
examine that relevant resolutions are passed by the directors and the shareholders and
guidelines of SEBI are followed.iii) The auditor should see whether prospectus or a
statement in lieu ofprospectus has been filed with the Registrar of Companies.iv) The
auditor should verify that an application is made to one or more recognized stock
exchanges before the offer of debentures to the public for subscription by the issue of a
prospectus.v) The auditor should examine the powers of directors whether there is any
restriction under Section 293.vi) Section 117A has now made it compulsory for filing of
debenture trust deed. The trust deed shall be open for inspection and can be made
available on payment.vii) Section 117B bad made it compulsory for creation of Debenture
Redemption Reserve. Such an amount cannot be utilized for any other purpose except for
redemption of debentures.viii) If the debentures are secured by charge on any assets, then
the auditor should verify that the charge is registered with the Registrar and such a charge
is also recorded in the separate register to maintaing the details of such charges.ix) The
auditor should examine the entries in the counterfoils of debentures issued with the
debenture register

19. x) The auditor should also examine the
journal entries for application and allotment
and also verify that if it is posted correctly
and verify the same with debenture register.

20. Audit of public deposit

21. Audit of investment
Investments are assets held by an entity for earning income by way of
dividends, interest and rentals, for capital appreciation, or for other
benefits
As auditors, we usually audit investments that the client has on their
financial statements by testing various audit assertions including
existence, completeness, valuation, and rights and obligations