Substantive Procedures
Substantive procedures are audit procedures designed to detect material misstatements at the assertion level, including tests of details and substantive analytical procedures.
Explanation
Tests of details examine individual transactions or balances (e.g., confirming receivables, inspecting invoices). Substantive analytical procedures evaluate financial information by studying plausible relationships among financial and nonfinancial data (e.g., comparing gross margin to prior year). The auditor must perform substantive procedures for all relevant assertions related to material transaction classes, balances, and disclosures, regardless of assessed control risk.
Key Points
- •Two types: tests of details and substantive analytical procedures
- •Required for all relevant assertions of material accounts
- •Revenue recognition requires substantive procedures in every audit
Exam Tip
Even if controls are effective, substantive procedures are always required for significant accounts — you cannot audit entirely through controls testing.
Frequently Asked Questions
Related Topics
Audit Evidence
Audit evidence is all information used by the auditor to arrive at the conclusions on which the audit opinion is based, evaluated for sufficiency (quantity) and appropriateness (quality).
Audit Risk Model
The audit risk model expresses audit risk as a function of inherent risk, control risk, and detection risk: AR = IR × CR × DR.
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