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Auditevidence Gathering Procedures: Substantivetesting

Substantive tests are audit procedures designed to detect material misstatements in financial statement assertions. They include tests of details of transactions, balances, and disclosures as well as analytical review procedures. Tests of details focus on validating individual financial statement items, while timing of these tests can be before or after year-end. The document provides guidance on factors to consider for interim testing and discusses directional testing approaches to discover errors or omissions.

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256 views

Auditevidence Gathering Procedures: Substantivetesting

Substantive tests are audit procedures designed to detect material misstatements in financial statement assertions. They include tests of details of transactions, balances, and disclosures as well as analytical review procedures. Tests of details focus on validating individual financial statement items, while timing of these tests can be before or after year-end. The document provides guidance on factors to consider for interim testing and discusses directional testing approaches to discover errors or omissions.

Uploaded by

nica lee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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A U D IT EV ID EN C E

G ATH ER IN G P R O C ED U R ES :
S U B S TA N TIV E TES TIN G

W hat are Substantive Tests?


Substantive tests or procedures are

audit procedures designed to detect


material misstatements at the
assertion level.
- International Standard on Auditing
(ISA)

G eneralTypes ofSubstantive Tests

Tests of details of transaction,

balances, and disclosures


Analytical review procedures

Tests of details of transaction, balances,

and disclosures focus on the items that


are contained in the financial statement
account balances and disclosures.
Furthermore, these are used to
determine if transactions are valid,
properly classified, accurate, and
complete.

Tim ing ofTest ofD etails


It is often desirable to perform tests

of details before year-end (early


substantive testing), particularly if
the client wants the audit to be
completed shortly after year-end.

Interim Testing:O ther


Considerations
The control environment and other relevant controls
The availability of information at a later date that is

necessary for the auditor's procedures


The objective of the substantive procedure
The assessed risk of material misstatement
The nature of the class of transactions or account
balance and relevant assertions
The ability of the auditor to reduce the risk that
misstatements that exist at the period end are not
detected by performing appropriate substantive
procedures or substantive procedures combined with tests
of controls to cover the remaining period in order to
reduce the risk that misstatements that exist at period
end are not detected

Substantive Test ofD etail:


D irectionalTesting
Tests designed to discover errors

(resulting in under or overstatement)


Tests designed to discover omissions

(resulting to understatement)

Tests designed to discover


errors (resulting in under or
overstatem ent)
These tests will start with the

accounting records in which the


transactions are recorded to
supporting documents or other
evidence.

Tests designed to discover


om issions (resulting to
understatem ent)
These tests must start outside the

accounting records and then


matched back to those records.

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