What Is Involved In Substantive Testing? C.

Completeness

 Tests of transactions
[1]. Obtain bank cutoff statement and determine
 Tests of details of account balances
propriety of year-end outstanding checks and
 Analytical procedures
deposits-in-transit.
In testing transactions, the auditor is concerned
[2]. Examine or prepare year-end bank
with tests of:
reconciliation.
 Omitted transactions and account
understatement (tracing source
documents to the books of entry) [3]. Prepare a proof of cash.
 Invalid or unsupported transactions and
account overstatement (tracing [4]. Perform analytical procedures.
recorded transactions to source
documents). D. Existence or Occurrence (See Valuation or
Allocation)
Substantive Tests of Cash
E. Rights and Obligations
A. Presentation and Disclosure
[1]. Read or review the financial statements to [1]. Read minutes of the board of directors’
verify proper classification. meetings.

[2]. Read or review the financial statements to [2]. Determine existence of compensating
verify disclosures such as those relating to balances, levies, etc.
compensation balances.
[3]. Verify names on accounts through
[3]. Determine the conformity with GAAP. confirmation requests

B. Valuation or Allocation
Substantive Procedures for Cash
[1]. Simultaneously count cash on hand and 1. Confirm cash balances
negotiable securities.
2. Vouch reconciling items to the subsequent
[2]. Confirm directly with the bank:
month’s bank statement
 Account balances
 Direct liabilities to bank
 Contingent liabilities to bank 3. Ask if all bank accounts are included on the
 Letters of credit general ledger
 Security agreements under the Uniform
Commercial Code
 Authorized signatures 4. Inspect final deposits and disbursements for
[3]. Count petty cash fund and reconcile with
proper cutoff
vouchers.