Substantive procedure/test of control

Question 1

Substantive procedures are designed to

Answer 1

Detect material misstatement

In fs fraud/error

Question 2

Substantive procedure can be: test of detail
Or analytical procedures

Define test of detail giving examples

Answer 2

Look @ supporting evidence for individual transactions tracing through to fs to ensure dealt with appropriately

E.g.

Inspect purchase invoice for amount agree to purchase day book to ensure recorded accurately

Recalculate allowance for doubtful receivables using client formula to Verify arithmetic accuracy

Question 3

Substantive procedures can be:

Analytical procedures
Test of detail

Explain analytical procedures

Answer 3

Test balance as a whole to Identify unusual relationship
E.g.
Calculate receivables days and compare to credit terms to identify any overstatement

If too highly discuss with manager need to increase allowance for doubtful receivables

Calculate expected interest charge for loan by multiplying o/s loan amount by interest rate
- compare to client figure

Question 4

Tests of detail are designed to …

Examples

Answer 4

Check internal control system operates effectively

Example

1 inspect purchase invoice for evidence that authorised by management before payment made

Observe process despatch goods to ensure wh staff check goods to order before dispatching goods

Using dummy date take cust over c/l to to verify system won’t accept it

Question 5

Auditors obtain evidence to draw conclusions with which to base opinion

By performing what 3 types of procedures?

Answer 5

SUBSTANTIVE PROCEDURES to detect material misstatement

To obtain understanding of client, environment & internal control system to assess risk of material misstatement by performing RISk ASSESSMENT PROCEDURES

TESTs of CONTROL
- to test operating effectiveness of controls to prevent, detect correct material misstatement