Improving financial statement analysis efficiency: a new Excel tool can help auditors comply with the SAS No. 99 minimum requirements for financial statement analysis in audits.

• Author: Lanza, Richard B.

Many auditors consider procedures of SAS No. 99, Consideration of Fraud in a Financial Statement Audit, to be the maximum level needed in an audit. This may be a misjudgment, however, because SAS No. 99 provides the minimum standards that auditors need to work towards. Some of these "minimum" procedures include increased use of technology in the audit (otherwise known as computer-assisted audit tools or CAATs), increased use of analyticals, and the assumption in the auditor's risk assessment that revenue is overstated.

To that end, this article presents a tool that:

* Calculates a comprehensive multi-period financial statement analysis using standard balance sheet and income statement information.

* Presents common indicators associated with revenue overstatement based on numerous sources.

* Tees up additional data analysis (using CAATs) and audit test work using either Microsoft Excel or more advanced tools.

* Please note that the tool presented in this article stays at a high level balance sheet and income statement level. To be a highly effective audit test, the auditor may want to use more data such as a full trial balance or even a detailed subledger.

The best part, and music to any CPA's ears, is that the tool discussed in this article is easy to use (based on Microsoft Excel) and is available free through a special arrangement with Bi3.net, who created this tool.

Transforming financial statement analysis

Tom Peters, in his new business management book Re-Imagine states that the last 30 years of technology implementations have all but "paved the cow paths." That is to say that although we use the same methods, we are doing them a bit faster with improved automation. As such, we can develop an Excel spreadsheet to simply recalculate the ratios that we have performed by hand for as long as we can remember. Or we can go further, and start to infuse our fraud knowledge into the product, churning off more benefits than simple efficiency. To that end, this article focuses on improvements that can be made with Excel to transform the financial statement analysis into a powerful fraud-fighting tool.

Step one: automating financial statement analysis

Before transforming the standard process for developing an analytical, we need to step back and contemplate it, namely:

* Develop an expectation.

* Compare the expectation to the actual financial statements.

* Investigate differences and obtain additional corroborating evidence.

With the above...