Grape Limited presented its financial statements for the F.Y. 2023-24 to its auditor for expressing an opinion thereon. The auditor while carrying…

Purpose of Applying Analytical Procedure: Analytical procedures use comparisons and relationships to assess whether account balances or other data appear reasonable. The auditor of Grape Ltd. would achieve the following by carrying out the comparison stated in the question: If balances included in the Statement of Profit and Loss of an entity are compared with those contained in the Statement of Profit and Loss with that of the previous period, it would be possible to find out the reasons for increase or decrease in the amount of profits of those years.By setting up certain expenses' ratios on the basis of balances included in the Statement of Profit and Loss, for the year under audit, comparing them with the same ratios for the previous year, it is possible to ascertain the extent of increase or decrease in various items of expenditure in relation to sales and that of trading profit in relation to sales.If differences are found to be material, the auditor would ascertain the reasons thereof and assess whether the accounts have been manipulated to inflate or suppress profits.It may help identify the existence of unusual transactions or events, and amounts, ratios, and trends that might indicate matters that have audit implications.