Para 2.1.21 — MSO

2.1.21 Business analysis: This is a high (macro) level analysis of financial statements involving critical ratios related to profitability, liquidity, financial stability, debt, etc. It is a useful technique for identification of risk areas during planning and audit completion stages and also for a better understanding of the entity and its operations. However, it provides no audit assurance and is not used in the execution stage. It requires detailed knowledge of general business relationships and trends; consequently, it is likely to prove a useful tool for the more experienced members of the audit team who can apply their cumulative knowledge of the particular entity being audited.