[The following paragraph was effective for audits of financial statements for periods beginning on or after January 1, 1989. It was amended, effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004.

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Understanding financial relationships is essential in planning and evaluating the results of analytical procedures, and generally requires knowledge of the client and the industry or industries in which the client operates. An understanding of the purposes of analytical procedures and the limitations of those procedures is also important. Accordingly, the identification of the relationships and types of data used, as well as conclusions reached when recorded amounts are compared to expectations, requires judgment by the auditor.