Thomas Reuters’ headquarters is at 3 Times Square in New York, United States of America. The company has been ranked among the world’s largest and leading corporate brands in key rankings such as the Interbrand Best Canadian Brand ranking of the year 2010. The two main divisions in which the company operates are Markets and Professional. The Market Division includes Enterprise solutions, Media and financial Professionals and market places. The Professional division on the other hand is composed of Health care and Science which was formerly referred to as Thomson scientific and Thomson Healthcare, Tax and Accounting which in former times was Thomson tax and Accounting and Final the legal department which was formerly referred to as the North American Legal and Legal & Regulatory (Robert, 2007).

Thomas Reuters has been described by a number of persons as the world’s number source of intelligent data and information for professional s and businesses too. The company combines innovative technology and industry expertise to deliver information of critical importance to decision makers in the various sectors in the industry such as healthcare, legal, financial, tax and accounting, media markets and science. This is powered and propelled by the most trusted news firm or organization in the entire globe. The shares of Thomson Reuters are listed in the NYSE: TRI (New York Stock Exchange) and the TSX: TRI, which is the abbreviation for Toronto Stock Exchange (Robert, 2007).

Thomas Reuters is a company that lays its focus on its employees and staff members. The organization has a good corporate culture which is seen to encourage the members of staff and at the same time motivates them by making each and every one of them feel important. For this reason, the employees are committed to the organization’s goals and objectives, and are aware that they play a critical role in the overall success of the firm (Plantin, 2008).

Corporate Philosophy or Corporate Identity can be described as the persona that an organization is designed to comply with. This persona enables the organization to achieve its various corporate goals as well as objectives. Trademarks and branding are the key manifestations of corporate philosophy. An organization corporate philosophy can be deduced from the company’s corporate personality or the corporate culture which can be seen in the various stake holders such as the management and the staff members (Robert, 2007).

Thomas Reuter’s Corporate Philosophy is seen to be centred on inspiring employee pride and creating happiness within the human resource department. Innovation, positive thinking and quality are among the key components that the organization focuses on. Courtesy is another aspect that is of fundamental at the Thomas Reuters organization. The courtesy is extended both within and without the organization so as to ensure that the working environment is suitable and conducive. The company also takes safety matters seriously. The structural designs of the buildings in the organization have been built with safety matters in mind to minimize on the possibility of accidents within the work place, at the same time; the company has instituted a number of compensation program s and insurance programs Incas of on the job accidents. The victims are treated well and compensated accordingly. The employees’ suggestions and contributions are taken by the management who analyze and implement the ones that are of benefit to the organization. There is democracy and the employees are allowed to participate in decision making. Media reports on the internet support the claim that Thomas Reuters Company is the leading source of intelligent information.. The company boasts of over fifty five thousand employees who are based in more than a hundred countries.

Thomas Reuters’ Business Model and its key Operating Characteristics

The company derives a majority of their revenues from selling electronic services and content to professionals across the world basically on a subscription basis. A description of their key operating activities is explained further below. Thomas Reuters is seen to be the industry leader, in most of the market segments the company serves, it is ranked position one or two. They have a balanced and well diversified portfolio. The company boasts of five distinct key groups of customers. The company is also geographically diverse. In the year 2010, fifty nine percent of their revenues came from the Americas, thirty percent from Europe and Africa, the Middle East and Asia accounted for eleven percent of their total earnings. The company also has an attractive business model with strong and consistently steady cash flow generating abilities. In the year 2010, eighty six percent of their revenues were seen to be recurring. Thomas Reuters Company has disciplined financial policies and lays it focus on free cash flow, supports business goals that have strong capital strategies, and lastly but certainly not the least, the company invests to drive growth and returns that are of a long term nature. The Reuters legacy and acquisition savings program benefits have led to substantial savings on costs, exceeding initial targets that had been set. The company, operating in the business information environment, has robust technological platforms with highly valuable content. A number of the company’s revenues come from software, electronic services and electronically delivered information.

The business is founded on freedom from bias, independence and integrity, in accordance to the organization’s Code of Business Conduct and Ethics and also in relation to the Thomas Reuters Trust Principles

The organization upholds the principles of integrity. There ensure that all their dealings are honest as well as ethically or morally upright, There is zero tolerance to corruption and other fraudulent dealings. Anyone caught in any dishonest dealings is dealt with accordingly and in some severe and extreme cases, it could result in the loss of a job. The corporate philosophy which the company presents in its website is in keeping with the media reports and also what other players in the industry think about Thomas Reuters Company.

Overall Risk Assessment

The approach that this report will takes is of strategic nature where the overview tactical plans will be developed, these tactical plans will take into consideration Thomas Reuter’s objectives short term and long term goals and strategies as well. The focus will be the wider business environment in which Thomas Reuters Company operates. The risk assessment of Thomas Reuters will facilitate the gathering and synthesis of all relevant information that pertains to the formulation of conclusions for the applicable audit risk model. A strategic approach to each cycle will be taken to tackle the evidence mix.

The components of the audit risk model include inherent risk, detection risk, control risk as well as the audit risk itself. At Thomas Reuters, there is a inventory and warehousing cycle where there are quite a number of errors that can occur such as incorrect prices for various materials, theft of stock (inventory), the recording of incorrect quantities and lastly but certainly not the least, double shipments to customers. These errors are as a result of the inherent nature of the company’s system and may occur when the company lacks the right controls. This risk is seen to be relatively high in comparison to other risks. It is of noteworthy importance to indicate that internal controls are designed to detect, and correct and essentially prevent the occurrence of material errors in the financial statements of the company (Masten, 2009).

The audit risk model is composed of the Inherent Risk which is abbreviated as IR, the Control risk abbreviated as CR and the detection risk abbreviated as DR. The model is formal in nature and it reflects on the various relationships that exist among the various components of audit risk as has been presented above (Masten, 2009). The risks outlined further below are seen to be material and in the event that any developments or events occur, the financial condition of the organization and operations results will by all means be adversely affected. Futuristic downturns in the markets that Thomas Reuters serves will have an adverse effect in the company. Since the financial strength and health of the company heavily depends on the financial position of their clients, which on the other hand is dependents on the general fiscal conditions of major markets in Asia North America and Europe. Downturns could have serious financial implications due to reduced customers activity and consequently a drop in service demand.

Highly competitive markets; the news and information industry is seen to be quite competitive. The organization’s competitors are seen to be recognized brands, possess technological expertise, and have substantial access to financial resources and the relevant market experience. In addition to all these, the competitors are enhancing their services and products through innovation and investing heavily in technology so as to provide premier services to the market. There is a risk that these very competitors may cut out for themselves additional shares in the market. Search providers and Internet service companies also provide undue competition and pose potential threats to some of Thomas Reuters’ by proving in depth customized services. Adverse competitions may force the organization to reduce on their price offerings or increase the amount of capital investments which in the end will have an adverse effect on their profit margins. Failure to do so will result in the loss of their market share.

As has been mentioned earlier, increased availability to relatively free or inexpensive sources of information may cause the demand for the services and products that this organization offers to go down. The internet is seen to be the major source of this kind of information. A number of companies for example have availed certain financial and legal information at absolutely no cost. “Open Source” software which is freely available provides functionality that is quite similar to some of Thomas Reuters’ product and service portfolios.

Failure by the organization to develop novel services, applications, functionalities and products for the sole purpose of attracting new customers, meeting customer needs and also for the expansion into geographically new markets will have a negative impact on the organizations gross returns. The organization must quickly respond to the ever changing needs of its clientele. Since the company generates a large percentage of its revenues from recurrent arrangements that are subscription-based, the ability to exist on maintaining existing revenues is heavily reliant upon their own ability to maintain a relatively high rate of renewal.

Results of Key Analytical Review Procedures and Impact on the Audit Procedures

There are various analytical review procedures that can be used by auditors. These have been seen to be of critical importance to audit firms and for this reason; they are an integral part of the whole auditing process. It is the requirement of the Auditing Standards Board (ASB) that all auditing firms establish a formal procedure to conduct audits on companies’ financial statements. These procedures must be used by auditors in their planning processes. The analytical procedures enable the auditors to draw plausible relationships between financial and non financial data that concern the entity that is undergoing the audit process.
There are five major components that are applied in the analytical process and they include: expectation development second is search of relevant information and evaluation of various explanations presented, making of decisions and lastly but certainly not the least is documentation of the whole audit process.
The first step which is the establishment of an expected account balance which entails an analysis of expected results on the basis of forecast or budgets that the client has prepared or reports that the auditor has made from the interim periods that were prior to the period being analyzed. Information may also be obtained from the available information that can be obtained from the organization’s industry. After the development of the expectations as highlighted above, the expected balance to the real balance is done. If no significant difference is witnessed, the conclusion will be able to provide evidence which will support the financial data under examination. In case of any significant differences, the auditor goes deeper and tries to establish the nature of the difference and the possible causes for the variation.
Once the auditor has established a potentially feasible explanation to inherent variations, information that analyses and determines the adequacy of the information is sought after and this is determined by the nature of the analytical procedure that the auditor will have chosen.
Upon the completion of the necessary research and analysis, the auditor uses his or her own professional judgement to make a conclusion whether the explanations given for various variations hold water or not. This is in essence the decision phase of the whole auditing process. The various factors which the auditor must consider when analyzing the degree of accessibility of a given explanation includes the reliability of the evidence that has been presented, with the purpose of giving support to the evidence brought forth, the materiality of the unexpected variation and also, whether or not the explanation presented is sufficient enough to give a satisfactory explanation of a significant portion of the unexpected difference that has been observed.
On the 30th day of September of 2011, The Thomas Reuters Company reported results for the third quarter of the year. The ongoing revenues were reported at 3.3 Billion dollar, an impressive five percent increase before currency and an underlying operational profit of seven hundred and seventeen million, which was a twelve percent increase. The adjusted EPS, that is, earnings per share were at 0.56 dollars an increase from the previous year’s 0.45 dollars. The company’s performance without a shadow of doubt is pleasing as they continued to expand their margins and grow their respective revenues.
Thomas Reuters Company initiated quite a number of organization, product and strategic alterations that address the areas in the market division that were seen to be underperforming. With this trend, it is expected that the year 2012 and 2012 will improve in terms of sales performance and 2013 will experience remarkable revenue growth as a result.

Consolidated Financial Highlights

Three Months Ended September 30,
(Millions of U.S. dollars, except EPS and margins)

IFRS Financial Measures 2011 2010 Change
Revenues $3,453 $3,256 6%
Operating profit $659 $356 85%
Diluted earnings per share(EPS) $0.44 $0.32 38%
Cash flow from operations $576 $476 21%

Non-IFRS Financial Measures[1] 2011 2010 Change Change Before
Currency
Revenues from ongoing businesses $3,258 $3,030 8% 5%
Adjusted EBITDA $940 $767 23% 20%
Adjusted EBITDA margin 28.9% 25.3% 360bp 370bp
Underlying operating profit $717 $642 12% 10%
Underlying operating profit margin 22.0% 21.2% 80bp 90bp
Adjusted earnings per share (EPS) $0.56 $0.45 24%
Free cash flow $360 $215 67%

Source: http://en.acnnewswire.com/press-release/english/7950/thomson-reuters-reports-third-quarter-2011-results

The financial measures depicted above have been reconciled and defined to standard IFRS measures
The adjusted EBITDA went up by twenty three percent, with the corresponding margin being twenty eight point nine percent, versus twenty five point three percent in the previous year (2010) With the exception of currency; the adjusted EBITDA witnessed a twenty percent increase. The corresponding margin went up by three hundred and seventy basis points.
The flow through from increased incomes, benefit of currency and integration savings were responsible for the growth of the adjusted EBITDA as well as the growth of the operating profit across the two major divisions in the Thomas Reuters Company.
The auditors believe that measuring growth revenues comparisons should be done before the foreign currency’s impact. This provides the best avenue to determine the performance of the client in question and in this case, Thomas Reuters. The following data provides operating profit and revenue growth comparisons based on the businesses that are ongoing and deliberately eliminating on businesses that had already been sold or were expected to close within a short span of time.

Professional Division

Three Months Ended September 30,
(Millions of U.S. dollars, except margins)

2011 2010 Change Change Before
Currency
Revenues
Legal $896 $825 9% 8%
Tax & Accounting $272 $226 20% 20%
Intellectual Property & Science $215 $193 11% 10%
Professional Division Total $1,383 $1,244 11% 10%

Adjusted EBITDA Margin
2011 2010
Legal $343 $321 7% 38.3% 38.9%
Tax & Accounting $77 $62 24% 28.3% 27.4%
Intellectual Property & Science $79 $64 23% 36.7% 33.2%
Professional Division Total $499 $447 12% 11%
Adjusted EBITDA Margin 36.1% 35.9% 20bp 10bp

Operating profit

Legal $270 $252 7% 30.1% 30.5%
Tax & Accounting $50 $41 22% 18.4% 18.1%
Intellectual Property & Science $64 $50 28% 29.8% 25.9%
Professional Division Total $384 $343 12% 11%
Operating Profit Margin 27.8% 27.6% 20bp 30bp
Source: http://en.acnnewswire.com/press-release/english/7950/thomson-reuters-reports-third-quarter-2011-results

As can be seen from the data presented above, Revenues went up by ten percent; this was basically driven by solid sustainable growth across all businesses that the organization was involved in. Legal, on the other hand was seen to have expanded by eight percent. Tax and Accounting experienced a twenty percent growth while Intellectual Property and Science went up by a significant ten percent. EBIDTA went up by a percentage of twelve. The corresponding margin was at thirty six pint one percent an overall increase of twenty basis points. Flow through from the higher revenues was partly balanced off by the dilutive acquisition effects and the negative effects that the revenue mix had on the legal segment.

Legal
In the legal section, there was increases profit because of the United States Law firms went up by three percent while a seventeen percent increase was witnessed in Business of Law (Elite and Find law). This however was offset by a three percent decline in revenues from research related activities. Government, Academic Corporate Compliance and Risk revenues went up by thirteen percent. Strong growth was particularly witnessed in Canada and Latin America.

Tax and Accounting
Profits went up by an impressive twenty percent from the previous year. The factor that catapulted this was the growth and expansion in sales of income tax software and also the electronic or online filling of tax returns. Another factor that led to this remarkable growth was strong and steady growth in acquisitions and checkpoint. As a result of this, EBITDA went up by twenty four percent with the related margin going up by twenty eight point three percent which translates to ninety more basis points. The primary driving force behind this was the steady flow through from profits and the efficiency initiatives that had been earlier taken by Thomas Reuters Company.
Intellectual Property and Science
Growth in this department of the company was stimulated by IP solutions which went up by twelve percent in comparison the prior year. IP managerial services were the biggest contributors to this, on the other hand, Scientific and Scholarly research increased by eight percent primarily because of timing benefits that were seen to be related to growth in core or key information offerings and also back file sales. The increase in Life sciences is attributed to a continued demand in disease analytics products and biology.

Markets Division

Three Months Ended September 30,
(Millions of U.S. dollars, except margins)

2011 2010 Change Change Before
Currency
Revenues
Sales & Trading $936 $886 6% 2%
Investment & Advisory $550 $550 0% -3%
Enterprise $309 $273 13% 8%
Media $83 $79 5% 0%
Markets Division Total $1,878 $1,788 5% 1%

Adjusted EBITDA $525 $473 11% 8%
Adjusted EBITDA Margin 28.0% 26.5% 150bp 170bp

Operating Profit $382 $353 8% 4%
Operating Profit Margin 20.3% 19.7% 60bp 60bp

Materiality

Materiality is seen to be an elusive subject because it requires in depth professional audit skills in order to successfully give an exposition of it. The conclusive results that one will arrive at will be basically dependent on the kind of variables that one chooses to use when making the respective estimates. There are a number of ways for measuring and determining materiality chief among them being, measuring of the same in relation to some other component for example account balance, compliance requirements and financial statements. Materiality can also be determined by measuring size or even as a percentage of something else (Plantin, 2008).

Lastly and not least materiality can be measured as a cut off point or as a threshold. It is also important to emphasize on the fact that materiality is not constant and therefore varies from one year to another and also from one entity to the next. The FASB, that is the Financial Accounting Standards Board, the SEC ( Securities and Exchange Commission ) and finally the IASB (International Accounting Standards Board) defines materiality as the magnitude or extent of a misstatement or omission of accounting data which in the light of the circumstances that surround an undertaking, my make the judgement of a reasonable auditor relying heavily on the information given to be altered or greatly influenced by the specific omission or misstatement (Hirst, Eric & Koonce,1996).

These omissions could also influence the fiscal or financial decisions that the users of the information will make on the basis of the financial statements that have been presented. Materiality is therefore heavily dependent upon the magnitude of the item under consideration or the error that has been judged in the specific circumstances of its misstatement or omission. For this reason, it would be correct to conclude that materiality as a component provides a cut off point or as had been earlier stipulated, a fundamentally basic qualitative characteristic that any given information must possess if the information is to be rated as reliable as well as useful. Materiality can be calculated by incorporating a number of variables to conditions that are unknown (Hirst, Eric & Koonce, 1996).

According to the ground rules at the Thomson Reuters Company, the auditor of its financial statements is not allowed to assume the immateriality of the omissions and misstated items which are seen to fall below a certain threshold percentage which the management has put in place. There is exclusive reliance in the reliance of quantitatively measured variables to determine the extent of the company’s materiality. This is inappropriate simply because there is no ground basis that supports this characteristic reliance in either law or the accounting literature.

Key audit issues and their impact on the key components (cycles).

On the basis of the 2011 financial year, it has been noted that sales and collection improvement greatly which resulted in revenue growth. The company’s acquisition of new market shares also went up. The company was able to launch new products such as WestlawNext, a legal research platform Advantage Suite 5.0, which is aimed at supporting decision making in the healthcare industry, Thomas Reuters Eikon, ONESOURCE global tax workstation, which provides a modified and better approach to compliance to global tax and lastly but not least the Thomas Reuters Elektron, which is seen to be a ultra low latency electronic trading as well as platform for data distribution.

In the foundational acquisitions, the company invested in Governance, Risk and Compliance, emerging energy markets and Global General Counsel which are seen to be higher growth areas. The organization further pursued global expansion through major acquisitions in India, Brazil and other fast-developing markets. On inventory and warehousing, Thomas Reuters has instituted efficiency initiatives where they have integrated and consolidated technology platforms and transformed the general technological infrastructure through virtualization, automation and standardization. The result of this is a new platform for customer management and platforms.

It is important to note that most of the acquisitions that the company is seen to have made or of a tactical nature. These acquisitions basically relate to the purchase of products or services and information which it integrates in to its own operations so as to widen its range of market offerings with the sole aim of expanding markets outside USA. The company has done an impressive job on the elimination of cost redundancies and also integrating the acquired information, services and information with their existing capabilities and offerings so as to achieve growth in their profit margins.

Use of Non-IFRS Measures

The non IFRS measures that are used her in this paper include revenues at constant currency (That is before revenues or currencies and excluding the various effects of foreign currency). Operating profit emerging from ongoing businesses, revenues or returns from ongoing businesses, net debt, free cash flow, adjusted earnings and adjusted earnings per share from the continuing operations, adjusted EBITDA, Return on capital invested and lastly underlying free cash flow. The use of Non-IFRS measures provides more insight into the organization’s general performance. It has been noted that much as the company is not entirely opposed to the use of a threshold of five percent, it has cautioned that qualitative measures must be incorporated in the determination of the company’s materiality (O’Reilly et al, 1998). The materiality of each accounting item in the financial statements has been done based on the qualitative and also quantitative measures. The offsetting misstatements have not been overlooked instead; they have been presented just after the presentation of each accounting item. For the sake of avoidance of intentional immaterial misstatements the auditing group kept records, accounts, books which to a significant extent reflect the dispositions and transactions of the client.

In determination of Thomas Reuter’s materiality in its financial statements, the following factors were considered, the significance and the general impact of the inherent misstatements, the reason for the occurrence of the misstatement, and it was found that a number of the statements were unintentional as opposed to the intentional procedure as a regular pattern of ‘management of earnings’. Also the costs incurred in the correction of the misstatements were put in consideration. It was seen that the correction of the inconsequential misstatements would not require unjustified huge expenditures.

The quantitative measures that were used in the determination of the company’s level of materiality included whether the misstatements altered a loss to income or the other way round, whether the misstatement arose from a component that could be precisely measured or whether it arose from an approximated estimate, and if the case was so, the degree of inherent imprecision was determined accordingly. It was equally important to determine whether the misstatement in question masked a significant change in other trends such as earnings and revenues. In addition to this whether or not the particular misstatement hid a failure to meet the stakeholder’s expectations for the organization was a factor to be placed under consideration.

A qualitative analysis was conducted on the basis of the price volatility of the organization’s general market reaction and securities to disclosures that had been made in the past. The auditors made affirmative action on the misstatements that they felt were intentional. It is important to stress on the fact that the number of intentional misstatements in the case of Thomas Reuters; financial statements was minimal. The misstatements that the auditing group found to be intentional were exposed and disclosed to the management and the internal audit committee.

The financial statements of Thomas Reuters Company are prepared in accordance with the IFRS that is the International Financial Reporting Standards as has been set out by the IASB, that is, the International Accounting Standards Board. The data obtained from the financial statements of the organization gives an indication of the company’s financial position. It is of noteworthy importance to indicate that there are certain non0IFRS measures that have been included in this audit report. These are used by the company as supplement indicators of the organization’s operating performance. It should also be noted that these measures in questions have no standardized meanings of any sort and for this reason, cannot be utilized by other companies for comparative purposes (Ryan, 2008).

Material Assumptions and Material Risks

The forward looking statements have been used to reflect the company’s expectations that characterize the present. These statements are based on some general assumptions (Greg et al, 2008). As a result of this there are a number of risks that are seen to be inherent and also some uncertainties of noteworthy importance which may cause the real events or results to differ to a significant extent. These deviations would be from the expectations that the company has. There is no specific assurance that any of the forward statements that have been proposed will actually be realized at a given point and time. The appropriateness of such statement is therefore in the 2011 business context and no other purposes in this case. For this reason, it is important that no one that is neither the stakeholders of the company nor the company administration itself should place undue reliance and reliance to the statements being referred to as foreword statements.

There are various internal as well as external assumptions that have been made. Market and economic assumption include the positive world GDP increase which has been facilitated by the fast-developing economies and also a rising increase in the population of professionals in the global arena as well as their high demand for services and information of quality standards. However, these are not limited to the stated factors. The assumptions based on operational and international financial operations include, although are not limited to globalization strategy, the successful institution and execution of the product release programs that Thomas Reuters Company is currently focussed on, a number of various other efficiency and programs and growth stimulation initiatives.

Some of the material risk factors that are likely to lead to a variation in the actual events and results from those that have been clearly expressed in forward looking statements include the actions of competing companies, the general global economy, failure to develop and introduce novel products, functionalities, services to the market so as to meet the ever-changing needs of the customers, increased accessibility to inexpensive or even free information sources, failure to attract new customers and to increase the company’s market share, detrimental reliance on other parties for services that are of informative nature, failures in the network systems (internet), legal and regulatory changes such as the Dodd-Franklin legislation as well as other fiscal services that are related to the business.

The other risks which fall in this category include downgrading of the credit ratings, fluctuations in the foreign currency exchange, impairment of the company’s goodwill, threat of legal claims and actions, failure to overcome the challenges that come with global operations, failure to protect and guard the reputation of Thomas Reuters, inadequate for minimal protection of the rights on intellectual property, Rising interest rates due to the global recession and also fight employee turnover rate (Greg et al, 2008).

Thomas Reuters Company is seen to be facing major challenges in meeting a number of their obligations to their staff members such as a shady post retirement benefit plan for the employees and undefined pension scheme, failure to achieve benefits from various integrative programs, failure to realize the anticipated benefits from joint ventures and investments or even dispositions.

Conclusion
Thomas Reuters has been described by a number of persons as the world’s number source of intelligent data and information for professional s and businesses too. The company combines innovative technology and industry expertise to deliver information of critical importance to decision makers in the various sectors in the industry such as healthcare, legal, financial, tax and accounting, media markets and science. This is powered and propelled by the most trusted news firm or organization in the entire globe. The shares of Thomson Reuters are listed in the NYSE: TRI (New York Stock Exchange) and the TSX: TRI, which is the abbreviation for Toronto Stock Exchange (Gregory, 2004).

Thomas Reuters is a company that lays its focus on its employees and staff members. The organization has a good corporate culture which is seen to encourage the members of staff and at the same time motivates them by making each and every one of them feel important. For this reason, the employees are committed to the organization’s goals and objectives, and are aware that they play a critical role in the overall success of the firm. There are various analytical review procedures that can be used by auditors. These have been seen to be of critical importance to audit firms and for this reason; they are an integral part of the whole auditing process. It is the requirement of the Auditing Standards Board (ASB) that all auditing firms establish a formal procedure to conduct audits on companies’ financial statements. These procedures must be used by auditors in their planning processes (White, 2009). The analytical procedures enable the auditors to draw plausible relationships between financial and non financial data that concern the entity that is undergoing the audit process (Gregory, 2004).

There are five major components that are applied in the analytical process and they include: expectation development second is search of relevant information and evaluation of various explanations presented, making of decisions and lastly but certainly not the least is documentation of the whole audit process.
The first step which is the establishment of an expected account balance which entails an analysis of expected results on the basis of forecast or budgets that the client has prepared or reports that the auditor has made from the interim periods that were prior to the period being analyzed. Information may also be obtained from the available information that can be obtained from the organization’s industry. After the development of the expectations as highlighted above, the expected balance to the real balance is done. If no significant difference is witnessed, the conclusion will be able to provide evidence which will support the financial data under examination. In case of any significant differences, the auditor goes deeper and tries to establish the nature of the difference and the possible causes for the variation (Tatge, 2009).

There are a number of ways for measuring and determining materiality chief among them being, measuring of the same in relation to some other component for example account balance, compliance requirements and financial statements. Materiality can also be determined by measuring size or even as a percentage of something else. Lastly and not least materiality can be measured as a cut off point or as a threshold. It is also important to emphasize on the fact that materiality is not constant and therefore varies from one year to another and also from one entity to the next. The FASB, that is the Financial Accounting Standards Board, the SEC ( Securities and Exchange Commission ) and finally the IASB (International Accounting Standards Board) defines materiality as the magnitude or extent of a misstatement or omission of accounting data which in the light of the circumstances that surround an undertaking, my make the judgement of a reasonable auditor relying heavily on the information given to be altered or greatly influenced by the specific omission or misstatement (Tatge, 2009)