Ch. 15 Substantive Procedures

Question 1

What is the purpose of substantive procedures?

Answer 1

Provides detailed instructions on the procedures to be performed during the risk assessment, risk response, and reporting stages. They’re designed to detect material misstatements at the assertion level and include substantive analytics and Test of details.

Question 2

What are types of substantive procedures?

Answer 2

• Inspection: examining records, documents, and physical assets
• Observation: watching a procedure being performed by another individual
• Inquiry: asking questions of another knowledgeable party
• External confirmation: requesting information from a third party
• Recalculation: Checking the mathematical accuracy of documents or records
• Reperformance - reperforming activities that were done by the client
• Analytical procedures - evaluating financial information through analysis of plausible relationships involving financial and non-financial data.

Question 3

How do you write/design substantive procedures to perform an audit?

Answer 3

1. What the risk is related to (account and assertion) and why it is a risk
2. Design a procedure to address it
3. Explain very clearly - who, what, when and how that procedure is done

i.e.
Explain what could be wrong in the financial statements - assertion and why its an issue
Obtain a piece of documentation from the client that supports the balance that we are looking at
Test that documentation by comparing it with support (recalculation, vouching, terms and conditions, etc).

Template:
Risk:
Account and assertion:
Procedure: