Audit substantive test
Encyclopedia
Substantive procedures are those activities performed by the audit
or to detect material misstatement at the assertion level.
The different assertions of balances are completeness, existence, rights + obligations, valuation + allocation, and presentation + disclosure. Those for transactions are occurrence (validity), completeness, accuracy, cut-off and classification.
Management implicitly assert
that account balances and underlying classes of transaction do not contain any material misstatements: in other words, that they are materially complete, valid and accurate. Auditors gather evidence about these assertions by undertaking activities referred to as substantive procedures.
physically examine inventory
as evidence that inventory shown in the accounting records actually exists (existence assertion);
inspect supporting documents like invoices to confirm that sales did occur (occurrence);
arrange for suppliers to confirm in writing the details of the amount owing at balance date as evidence that accounts payable is a liability (rights and obligation assertion); and
make inquires of management about the collectibility of customers' accounts as evidence that trade debtors are accurate as to its valuation.
Evidence that an account balance or class of transaction is not complete, valid or accurate is evidence of a substantive misstatement but only becomes a material misstatement when it is large enough that it can be expected to influence the decisions of the users of the financial statements.
Audit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...
or to detect material misstatement at the assertion level.
The different assertions of balances are completeness, existence, rights + obligations, valuation + allocation, and presentation + disclosure. Those for transactions are occurrence (validity), completeness, accuracy, cut-off and classification.
Management implicitly assert
Management assertions
In a financial audit, management assertions or financial statement assertions is the set of information that the preparer of financial statements is providing to another party...
that account balances and underlying classes of transaction do not contain any material misstatements: in other words, that they are materially complete, valid and accurate. Auditors gather evidence about these assertions by undertaking activities referred to as substantive procedures.
Examples
For example, an auditor may:physically examine inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
as evidence that inventory shown in the accounting records actually exists (existence assertion);
inspect supporting documents like invoices to confirm that sales did occur (occurrence);
arrange for suppliers to confirm in writing the details of the amount owing at balance date as evidence that accounts payable is a liability (rights and obligation assertion); and
make inquires of management about the collectibility of customers' accounts as evidence that trade debtors are accurate as to its valuation.
Evidence that an account balance or class of transaction is not complete, valid or accurate is evidence of a substantive misstatement but only becomes a material misstatement when it is large enough that it can be expected to influence the decisions of the users of the financial statements.