The balance sheet is an accounting report that provides users with a snapshot in time of a company’s assets, liabilities and owner’s equity. A variance analysis is a performance measurement or audit tool to compare multiple balance sheets.
A balance sheet variance analysis compares the current statement to the previous period. Companies can also compare them to the previous quarter or year’s report for a deeper analysis. The purpose is to determine how much each item changes from one period to the next.
Auditors will often rely on a balance sheet variance analysis to determine if major increases or decreases occurred in the company’s financial information. These changes can be the result of natural business activity or inappropriate accounting transactions.
While previous decades focused on income statement performance, the current methodology in accounting focuses more on the balance sheet. The balance sheet represents the economic value added by a company, which also includes net income from prior periods.