Substantive analytical procedures. Analytical procedures are used as substantive procedures when the auditor considers that the use of analytical procedures can be more effective or efficient than tests of details in reducing the risk of material misstatements at the assertion level to an acceptably low level.
What are examples of substantive analytical procedures?
- Bank confirmation.
- Accounts receivable confirmation.
- Inquire of management regarding the collectibility of customer accounts.
- Match customer orders to invoices billed.
- Match collected funds to invoices billed.
- Observe a physical inventory count.
- Confirm inventories not on-site.
What are the substantive procedures in auditing?
Substantive procedures are the method or audit tests designed by an auditor to evaluate the financial statements of the company which require an auditor to create conclusive evidence for verifying the completeness, accuracy , existence, occurrence, measurement, and valuation (audit assertions) of the financial records ...
What is the difference between substantive procedures and analytical procedures?
Substantive tests, aka tests of balances, are more statistical driven and really dig into the details of the balances themselves. Analytical Procedures ARE $ ubstantive Procedures . Notice the S in substantive. There are two main types of activities auditors perform–tests of internal controls and $ubstantive testing.
What are substantive analytical procedures in auditing?
Substantive analytical procedures are used to obtain evidential matter about particular assertions related to account balances or classes of transactions . Final analytical procedures are used as an overall review of the financial information in the final review stage of the audit.
What are two types of substantive procedures?
There are two categories of substantive procedures – analytical procedures and tests of detail . Analytical procedures generally provide less reliable evidence than the tests of detail.
How are substantive analytical procedures used?
- STEP 1: Develop an independent expectation. ...
- STEP 2: Define a significant difference (or threshold) ...
- STEP 3: Compute difference. ...
- STEP 4: Investigate significant differences and draw conclusions.
What are the three main types of substantive procedures?
The three types of substantive tests are analytical procedures, a test of details of transactions, and tests of details of balances .
What is a substantive approach?
Substantive Audit Approach is one of the audit approaches used by auditors to verify the event and transactions in the financial statements by cover the larges volume of them . ... A substantive audit approach could be used by both internal audit and external audit activities and it is sometimes called a vouching approach.
Can you describe substantive tests?
Substantive testing is an audit procedure that examines the financial statements and supporting documentation to see if they contain errors . These tests are needed as evidence to support the assertion that the financial records of an entity are complete, valid, and accurate.
What are some examples of substantive testing?
- Contact customers/clients to confirm that accounts receivable balances are correct;
- Contact suppliers to confirm that accounts payable amounts are correct;
- Contact lenders to double-check and confirm that loan balances are correct;
Is recalculation a substantive procedure?
Recalculation procedures can be used as a test of control and a substantive test , and like reperformance, it results in audit evidence obtained directly by the auditor so it’s considered to be highly reliable evidence. The procedure can be done manually, but is most often done using CAATs.
What are compliance and substantive procedures?
Based on the observations and conversation with the organization, the IS auditor will conclude on whether the internal control is strong or weak in the organization. This indicates the test of control, which is compliance testing. ... This indicates a test of individual transactions , which is substantive testing.
What is the purpose of analytical procedures in an audit?
The purpose of applying analytical procedures in planning the audit is to assist in planning the nature, timing, and extent of auditing procedures that will be used to obtain evidential matter for specific account balances or classes of transactions .
What are the advantages of using analytical procedures as substantive tests?
Analytical Procedures to be used as Substantive Tests
The primary advantage of analytical procedures is that they are very cost effective and they are also reasonably effective at identifying accounts that may contain unintentional misstatements.
What is the difference between audit procedures and substantive procedures?
Audit procedures consist of tests of control and substantive procedures; ‘audit procedure’ is the global term. AEIOU can be used for substantive procedures. EIOU can be used for tests of control. (You can’t use analytical procedures for tests of control.)
