The 10-minute CY vs PY check that catches the obvious finalisation errors

A draft set of accounts lands on the partner's desk. Before anyone ticks a single voucher, there is a quick question worth answering: does this year look like last year, and where it doesn't, is there a reason? Ten minutes spent comparing the current year (CY) with the previous year (PY) in a fixed sequence usually surfaces the obvious errors — a missed provision, a misposted loan, a ledger that fell out of the mapping — while they are still cheap to fix. This article sets out that sequence, what threshold to use, what each anomaly usually means, and how to turn the findings into client queries.

A first-pass screen, not the SA 520 review

Be clear about what this check is. It is a triage that a partner or senior runs on the draft before detailed review, to decide where the team should look first. It does not replace the analytical procedures the Standards on Auditing require:

• SA 520, paragraph 6, requires the auditor to design and perform analytical procedures near the end of the audit that help form an overall conclusion on whether the financial statements are consistent with the auditor's understanding of the entity.
• When analytical procedures are used as substantive procedures, paragraph 5 requires a suitably precise expectation and a predetermined acceptable difference.
• Paragraph 7 requires significant unexplained differences to be investigated — by enquiry of management and by obtaining appropriate evidence for management's responses.
• Analytical procedures used for risk assessment are dealt with in SA 315 (paragraph 6(b)), as SA 520 paragraph 1 notes.

The 10-minute check sits closest to the risk-assessment end: it points you at areas, it doesn't give you evidence. A CY vs PY sheet with no expectation, no investigation and no conclusion is not an SA 520 review. For the full routine, see Analytical review under SA 520: a practical checklist.

What threshold to use

A comparison with no threshold produces a long list of trivial movements, and the important ones get lost. Two limits work better than one:

• A rupee limit — performance materiality is a sensible default. SA 320 (paragraph 9) defines it as an amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements together exceed materiality. If you have not yet set materiality for this file, set it first — see Materiality under SA 320 for small audits.
• A percentage change — for example 10% to 20% for most heads, depending on how stable the business is. A practical approach is to pick one figure per file and record it.

Look at a movement when it crosses both limits. A 300% increase in a ₹4,000 expense and a ₹2 lakh movement in a ₹5 crore revenue line are both usually noise. Where the risk is higher — revenue in a company with weak controls, or a head you already suspect — lower the threshold; SA 520 (paragraph A16) notes that as assessed risk increases, the difference that can be accepted without investigation decreases.

Checks 1–3: revenue, margin and expense heads

1. Revenue against GST turnover. Compare revenue from operations with the taxable and exempt turnover in the year's GST returns (outward supplies reported for April–March). They rarely agree to the rupee, but the difference should be explainable: advances, credit notes, exports, stock transfers to other GSTINs, non-GST income, or invoices of one year reported in the next. An unexplained gap points to a cut-off error, an unrecorded sale or an income ledger mapped to the wrong head. The SA 520 Appendix itself lists VAT returns (the pre-GST indirect tax returns) among sources of information for analytical procedures.

2. Gross margin. Compute gross profit as a percentage of revenue for both years. SA 520 (paragraph A2) gives gross margin percentages as an example of a relationship expected to follow a predictable pattern. A sudden rise often means closing stock is overstated or purchases are short (a missed year-end bill); a sudden fall often means stock is understated, a sale was missed, or a cost has been reclassified into purchases. A genuine price or product-mix change is possible — but get the client to say so and show it.

3. Each expense head. Go down the expense notes and stop at every head that crosses both limits. Typical findings:

• A head that dropped sharply — often a year-end provision not made (audit fee, bonus, electricity, rent for March).
• A head that jumped — often a capital item expensed, a prepaid amount not deferred, or a reclassification from another head.
• Employee costs moving out of line with headcount — SA 520 (paragraph A2) gives payroll costs against number of employees as an example of comparing financial and non-financial information.

Checks 4–6: finance cost, depreciation, working capital

4. Finance cost against average borrowings. Divide interest on borrowings by the average of opening and closing borrowings and compare the implied rate with what the company actually pays. The SA 520 Appendix lists interest expense against interest-bearing obligations as an example of a reasonableness test. A rate that is too low suggests a missed interest entry (often the March debit from the bank) or unrecorded borrowings; a rate that is too high suggests a loan repaid early in the year, processing charges, or interest on delayed statutory payments mixed in.

5. Depreciation against gross block. Compare depreciation as a percentage of average gross block for both years — the "estimation of depreciation" that SA 520 (paragraph A1) gives as an example of an auditor's expectation. A big change usually means depreciation was not run for additions, was run on assets already fully depreciated, was charged on land, or the method or useful lives changed — a change in estimate under AS 10, which AS 5 requires to be disclosed if material.

6. Debtors days and creditors days. Trade receivables over revenue × 365, and trade payables over purchases × 365, for both years. Debtors days lengthening without a reason often hides old balances that need a provision or a write-off; creditors days lengthening may mean disputed or unpaid dues — and a check on MSME payables. A sharp fall in either can mean year-end receipts or payments posted to the wrong ledger. Remember that the Schedule III ratio disclosures (Division I) include trade receivables and trade payables turnover, and require further explanation for any change of more than 25% over the preceding year. See Schedule III ratios and the 25% variance explanation.

Checks 7–10: cash, tax, ledgers and signs

7. Cash and bank against the bank reconciliation. Agree each bank balance in the trial balance to the year-end bank reconciliation, and look at the reconciling items. Old uncleared cheques, large unexplained "deposits not credited", or a cash balance that is unusually high for the business are the usual findings. A credit balance on a bank account that is not an overdraft is a classification point.

8. Tax expense against profit. Divide the current tax charge by profit before tax for both years. If the effective rate has moved sharply with no change in the tax regime the company has opted for, look for a provision not updated after audit adjustments, disallowances not reflected, or deferred tax not recomputed. Note that for FY 2025-26 accounts the current tax is computed under the Income-tax Act, 1961; the Income-tax Act, 2025 applies from tax year 2026-27.

9. New ledgers, vanished ledgers. List the ledgers with a balance this year and none last year, and the reverse. A new ledger may be a new loan, a new related party or a suspense account; a vanished ledger may have been merged, written off, or moved to another group — in which case the comparatives may need regrouping. This check is also the quickest way to catch a ledger that was never mapped to the statements.

10. Sign flips. Scan for balances that have changed side: a debtor with a credit balance, a creditor with a debit balance, a negative stock, a debit in an income head, a "prepaid" with a credit. Each one is either a classification issue (an advance from a customer, an advance to a supplier) or an error. Credit balances in debtors and debit balances in creditors should usually be shown under the right heading rather than netted.

Reading the results

The triage tells you where to ask, not what the answer is. A quick reference:

A genuine business change — a new product line, a lost customer, a price increase — is a perfectly good explanation. It still needs evidence behind it: SA 520 paragraph 7 requires the auditor to obtain appropriate audit evidence relevant to management's responses, and to perform other procedures where needed.

Turning findings into client queries

"Please explain the variance in expenses" invites a one-line reply that explains nothing. A good query names the figure, states what you expected, and asks for a document:

• "Electricity expense is ₹3.1 lakh against ₹5.4 lakh last year. Please confirm whether the March 2026 bill has been accounted for, and share a copy."
• "Revenue in the books is ₹8.42 crore; outward supplies in the GST returns for the year total ₹8.71 crore. Please provide a reconciliation."
• "Interest on the term loan works out to about 6% on average borrowings against a sanctioned rate of 10.5%. Please share the loan statement for the year."

Send the queries together, early, and track each one to a reply and a conclusion. Replies that change a figure go back into the trial balance — and then the comparison is worth running again on the revised figures. For a broader list, see the year-end audit query list.

After the ten minutes

Write down what you looked at, the threshold you used, what you found and who is following it up — a few lines in the file is enough at this stage, and SA 230 (paragraph 8) requires the procedures performed and their results to be documented. Then the detailed audit carries on. Near the end, the overall analytical review required by SA 520 paragraph 6 still has to be performed and documented on the final figures, with each significant movement explained and evidenced and a conclusion recorded. The triage simply means that, by then, the obvious errors have already been fixed.

Frequently asked questions

Sources

• ICAI — SA 520 Analytical Procedures
• ICAI — SA 320 Materiality in Planning and Performing an Audit
• ICAI — SA 230 Audit Documentation
• ICAI — SA 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment
• Schedule III amendment — G.S.R. 207(E), 24 March 2021 (Gazette)