Para 2.1.16 — MSO

2.1.16 Comparisons involving a single component: There are two types of comparisons. The first type involves comparison of the recorded value of a component with its budgeted value. The second, called trend analysis, involves a comparison of a component’s current value with its value in previous years. This procedure may be used at both the planning and execution stages of audit. It is commonly used to analyse income statement accounts. In attempting a comparison with budget figures, it will be necessary to consider the reasonability and reliability of the budget. The following questions will arise in this context:

(i) Are the budgets of the entity prepared on a reasonable basis, using reliable and adequate information? In trend analysis, it is preferable to compare figures of a few previous years than just the immediately preceding year in order to factor out any anomalies or aberrations specific to a given year.