Substantive Testing

Knowledge check list

Characteristics of Audit Evidence

Financial Statement Assertions

Audit procedures to gather evidence

Audit of Account Balances and Classes of Transactions

 Requirements: Some examples…
• Describe audit procedures you would perform during the audit of Andromeda Industries
Co:
(i) BEFORE and DURING the inventory counts; and
(ii) In relation to research and development expenditure.

• Explain FOUR factors which influence the reliability of audit evidence.

• Describe substantive procedures the auditor should perform to obtain sufficient and
appropriate audit evidence in relation to the VALUATION of Hyacinth Co’s inventory.

• Describe substantive procedures the auditor should perform to obtain sufficient and
appropriate auditevidence in relation to Airsoft Co’s year-end bank balances.
 Reading and answering techniques
Substantive Procedures

Steps to Follow:

Step 1: Identify: The Class of Transaction or Account balance for substantive procedures

Step 2: Pick: The assertion that is it at risk and needs testing, for relevance

Step 3: Write: Substantive procedures that are relevant

 Reading and answering techniques

Substantive Procedures

• 1 mark per well written procedure

(make sure the procedure is relevant and complete-to get the full credit)
 Reading and answering techniques

Substantive Procedures-Examples
• Agree all accounts listed on the bank confirmation letter to Airsoft Co’s
bank reconciliations and the trial balance to ensure completeness of bank
balances.

• For all bank accounts, obtain Airsoft Co’s bank account reconciliation and
cast to ensure arithmetical accuracy.

• Agree the balance per the bank reconciliation to an original year-end

bank statement and to the bank confirmation letter.

• Trace all the outstanding lodgments to the pre year-end cash book, post
year-end bank statement and also to the paying-in-book pre year end.
 Wrap up ‘Question’

A good question to attempt from the AA past exams

March/June ‘19: Hyacinth Co (14 marks)