Performing Substantive Tests

Are audit procedures designed to substantiate the account balances or to

detect material misstatements in the financial statements.
Substantive testing – is called detail testing where the main objective is
to verify the balances,transactions , and disclosures of financial
statemetnts.
  Auditor has to obtain sufficient appropriate
evidence to support the audit opinion.
 Substantive test and test of controls of
transactions and balances are the main evidence
gathering procedures.
Relationship between  Auditor selects most efficient and effective
evidence gathering combination of audit procedures that allows them
procedures to achieve audit objective.
 Assertions are used to help them in the risk
assessment of material misstatement, and to
direct their audit procedures to the assessment of
these risks.
Two types of  Analytical procedures- applied as substantive tests
enable the auditor to obtain corroborative
Substantive evidence about a particular account.
 Testing of details- involve examining the actual
Tests details making up the various account balances.
 Understanding
Control Over
Financial
Reporting
Substantive Internal Control Substantive

Audit Testing
Audit plan approach
Assessment

Flow Chart Systematic

Approach

Substantive
Testing/Detail
Testing
  Objective of substantive tests is to reduce
detection risk.
 Substantive tests of transactions focus on the
Test of details individual transactions that make up the balance.
 Substantive tests of balances substantiate the
ending balance of an account.
  The auditor develops specific audit procedures to
evaluate and address the risk of material
misstatement for both classes of transactions and
account balances.
Financial Report
 The risk associated with each assertion is
assessed, and substantive audit procedures are
directed at specific based on this assessment.
  Nature of substantive test – quality of the
evidence.
 Timing of substantive test- performed at interim
Effectiveness of
date or at year end interim.
Substantive tests
 Extent of substantive test- based on the auditor’s
judgement
  Most of controls are built around transaction flows.
 Test of Controls – transactions selected to test
whether related controls are working. Does not
Relationship between tests directly measure monetary error in accounting
of Controls and Substantive records.
Tests of transactions
 Substantive test of transactions- transactions
selected to determine whether monetary errors
have occurred.
 Underlying accounting data- refers to the
accounting records underlying the financial
statements.

Audit evidence
Corroborating informaiton- supporting the
underlying accounting data obtained from client
and other sources.
 SUFFICIENCY

Qualities of evidence
Appropriateness
Sufficiency – refers to
the amount of
evidence that the
auditor to
• Competence
accumulate.
• Materiality
• Risk
• Experience
 Relevance

Appropriateness- is the
measure of the quality of
audit evidence and its
relevance to a particular
Realibility
assertion and its realibility .
 Functions
of the Secondaril
working Primarily y
papers
Support the planning for
auditors opinion future audits
Audit Documentation/working on financial
Providing
papers - are records kept by statements information
Support the useful in rendring
the auditor that documents
auditor's other
the audit procedures applied, representation as to
information obtained and services(MAS or
compliance with tax consutancy)
conclusions reached. PSA.
Assist the auditor in Providing
the planning, adquate
performance, defense in case
review and of litigation.
supervision of the
engagement.
 Permanent file
 Copies of articles
 Major contracts
 Engagement letter
 Organizational chart
Classification of working  Anaylsis of long term accounts
papers
 Internal control analysis
Current file
 Copy of F/S
 Audit trial balance
 Working trial balance
 Lead schedules
 Detailed schedule
 Correspondence with other parties

 Ownership of working papers

 Confidentially of working papers
 Retention of working papers
 Guidelines for the preparation of working papers
1) Heading
2) Indexing
3) Cross –indexing/cross referencing
4) Tick marks
 Auditing Accounting Estimates
 Auditors Responsibility
 Related parties
 Managements responsibility
 Auditors responsibility
 Using the work of an auditors expert
 Determining the need for an Auditors expert
 Evaluating the Auditors Expert
 Effect of the Reliance in Expert’s Work on the Audit
Report
 Considering the work of internal Auditors
1. Internal Auditing
Preliminary assessment of internal auditing
1. Competence
2. Objectivity
3. Due professional care
4. Scope of Function
Evaluating and testing the work of internal auditors
Report by
Michelle
Merjudio
Gracias