Substantive testing refers to details testing either to obtain evidence that an account balance is not materially misstated or to make an independent estimate of some amount for example to value stock where there are no records. A transaction may be tested from the book of original entry to the ledger and finally to the financial statements. In carrying out substantive tests, transactions should be traced to supporting documentation. Audit tests are generally in 3 forms: Substantive tests Compliance tests Walk through tests Substantive tests These are detailed procedures carried out by the auditor to tests the operating effectiveness of the accounting system. Substantive procedures are used to detect material misstatement in transactions. They are usually in two forms: Tests of details of classes of transactions, which test for errors, fraud or accuracy of the records. [Capital and revenue expenditure] Substantive analytical procedures which involve the comparison of recorded values with the trend. These tests include trend analysis and use of accounting ratios NB- the auditor now concentrate on exceptional figure which fall out of trend Compliance tests: observing transactions in detail These are tests made to check whether the operations of the buzz where done in accordance with regulations stated by management. Compliance tests are done where the auditor wishes to rely on some system of internal control. The purpose of compliance tests is to obtain reasonable assurance that internal controls functions both properly and consistent. The auditor will observe transactions as they pass through the various control procedures e.g. security checks at the gate. The auditor uses compliance test to see whether the control procedures are being observed as recorded. Where the auditor is satisfied by level of compliance, he will limit out the carrying out of detailed tests of transactions. Walk through tests This is where the auditor picks some transactions and follows them from start to end. They are performed to tests the effectiveness of controls in preventing or detecting material misstatements. They are done when the auditor assessment of the risk includes an expectation of the effectiveness of controls and when substantive procedures alone do not provide sufficient audit evidence. They include enquiries, observation of specific controls and inspection of the client records. AUDIT OF FINANCIAL POSITION ITEMS Auditing non-current assets
Substantive testing refers to details testing either to obtain evidence that an account balance is not materially misstated or to make an independent estimate of some amount for example to value stock where there are no records. A transaction may be tested from the book of original entry to the ledger and finally to the financial statements. In carrying out substantive tests, transactions should be traced to supporting documentation. Audit tests are generally in 3 forms: Substantive tests Compliance tests Walk through tests Substantive tests These are detailed procedures carried out by the auditor to tests the operating effectiveness of the accounting system. Substantive procedures are used to detect material misstatement in transactions. They are usually in two forms: Tests of details of classes of transactions, which test for errors, fraud or accuracy of the records. [Capital and revenue expenditure] Substantive analytical procedures which involve the comparison of recorded values with the trend. These tests include trend analysis and use of accounting ratios NB- the auditor now concentrate on exceptional figure which fall out of trend Compliance tests: observing transactions in detail These are tests made to check whether the operations of the buzz where done in accordance with regulations stated by management. Compliance tests are done where the auditor wishes to rely on some system of internal control. The purpose of compliance tests is to obtain reasonable assurance that internal controls functions both properly and consistent. The auditor will observe transactions as they pass through the various control procedures e.g. security checks at the gate. The auditor uses compliance test to see whether the control procedures are being observed as recorded. Where the auditor is satisfied by level of compliance, he will limit out the carrying out of detailed tests of transactions. Walk through tests This is where the auditor picks some transactions and follows them from start to end. They are performed to tests the effectiveness of controls in preventing or detecting material misstatements. They are done when the auditor assessment of the risk includes an expectation of the effectiveness of controls and when substantive procedures alone do not provide sufficient audit evidence. They include enquiries, observation of specific controls and inspection of the client records. AUDIT OF FINANCIAL POSITION ITEMS Auditing non-current assets
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