Sign Up for Discounts
This form does not yet contain any fields.
    Follow us on Facebook
    Controller Library Value Pack
    CFO Library Value Pack
    Accounting Standards Library
    Wednesday
    Jan022013

    What are substantive procedures?

    Substantive procedures are intended to create evidence that an auditor assembles to support the assertion that there are no material misstatements in regard to the completeness, validity, and accuracy of the financial records of an entity. Thus, substantive procedures are performed by an auditor to detect whether there are any material misstatements in accounting transactions.

     Substantive procedures include the following general categories of activity:

    • Testing classes of transactions, account balances, and disclosures
    • Agreeing the financial statements and accompanying notes to the underlying accounting records
    • Examining material journal entries and other adjustments made during the preparation of the financial statements

    At a general level, substantive procedures related to testing transactions can include the following:

    • Examining documentation indicating that a procedure was performed
    • Reperforming a procedure to ensure that the procedure functions as planned
    • Inquiring or observing regarding a transaction

    Examples of substantive procedures are:

    • 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
    • Match purchasing records to inventory on hand or sold
    • Confirm the calculations on an inventory valuation report
    • Observe fixed assets
    • Match purchase orders and supplier invoices to fixed asset records
    • Confirm accounts payable
    • Examine accounts payable supporting documents
    • Confirm debt
    • Analytical analysis of assets, liabilities, revenue, and expenses

    Thus, an auditor who is testing a validity assertion regarding a company's fixed assets could conduct a physical observation of the assets, and then test for record accuracy by evaluating whether there is an asset impairment.

    Substantive procedures are included in the audit plan around which an audit is structured. If the results of substantive procedures are not as expected, additional procedures may be added to the audit plan.

    Related Topics

    Audit based on risk
    Control assessment updates
    Expense report audit techniques
    Over-auditing of internal audits
    Self-audit guides

     

    PrintView Printer Friendly Version

    EmailEmail Article to Friend

    Reader Comments

    There are no comments for this journal entry. To create a new comment, use the form below.
    Editor Permission Required
    You must have editing permission for this entry in order to post comments.