ANALYTICAL PROCEDURE Definition

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ANALYTICAL PROCEDURE is a comparison of financial statement amounts with an auditor's expectation. An example is to compare actual interest expense for the year (a financial statement amount) with an estimate of what that interest expense should be. The estimate can be found by multiplying a reasonable interest rate times the average balance of interest bearing debt outstanding during the year (the auditor's expectation). If actual interest expense differs significantly from the expectation, the auditor explains the difference in audit documentation.

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MATCHING PRINCIPLE see MATCHING CONCEPT.

DIRECT FINANCING LEASE is one in which the lessor's only source of revenue is interest. The lessor (generally a bank or other financial institution) buys an asset and leases it to the lessee. This transaction is an alternative to the more customary lending arrangement in which a borrower uses the loan proceeds to purchase an asset. A direct financing lease is the functional equivalent of a loan.

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