Topic 8 - Substantive Testing Flashcards
What are substantive tests?
Tests performed to obtain audit evidence to detect material misstatement in the financial report.
which type of risk does substantive testing reduce?
Substantive tests are used to reduce detection risk
What are the three categories of substantive tests?
■ Substantive Tests of Transactions (Tests to substantiate transactions)
■ Substantive Tests of Details of Balances
(Tests to substantiate account balances)
■ Substantive Analytical Procedures (Use of analytical procedures to
substantiate account balances)
What is the Difference Between Substantive Tests of Transactions and Tests of Controls?
Substantive Test of Transactions- substantiate transactions
Test of Controls - tests effectiveness of controls over processing transactions
List four Evidence Sources?
■Accounting records
■Corroborating information (documents)
■Board, management and staff, physical resources
■Third parties, market data, other information
List five Procedures of substantive testing?
■Inspection ■External Confirmation ■Enquiry ■Recomputation ■Analytical Procedure
what are three forms of
Evidence Gathering for Substantive Testing?
■Sampling
■Selecting specific items
■100% examination
What five aspects influence the selection of audit procedures?
■Nature of the item ■Size and volume of transactions ■Location ■Custody of the asset ■Availability of particular evidence
What are the 6 Transactions assertions?
■completeness ■cut-off ■classification ■occurrence ■accuracy ■presentation
What are the 5 Balance assertions?
■rights and obligations ■existence ■accuracy valuation and allocation ■presentation ■completeness
For the balance of Cash at Bank, which assertions is the emphasis on?
existence and completeness
For transactions that increase or decrease Cash at bank what assertions is the emphasis on?
Occurrence and completeness
with Bank Reconciliation, what items must be added/deducted from Cash at bank Balance (Accting Record) so as to match Bank Statement?
- Deposits in transit
- Unrecorded bank fees
+ Outstanding cheques
+/- Other reconciling amounts.
How would you test existence of cash balance?
Confirm client’s balances with bank. Perform a bank reconciliation (vouching)
How would you test Completeness of Cash Balance?
Cash Balance in Balance Sheet includes all cash items, Perform a bank reconciliation (tracing)
How would you test Occurrence of Cash Receipts?
Vouch a sample of entries in the Cash
Receipts Journal to supporting documentation.
How would you test Completeness of Cash Receipts?
Trace from source document to Cash
Receipts Journal
How would you test Occurrence of Cash Payments?
Vouch a sample of entries in the Cash
Receipts Journal to supporting documentation.
How would you test Completeness of Cash Payments?
Trace from source document to Cash
Receipts Journal
Which assertions are emphasised for Sales and AR?
Sales/Cash receipts- occurrence,
accuracy and cut-off
AR - existence
and valuation of accounts receivable
Auditor undertakes a STOT to find out if all
transactions are bona fide, and that no fictitious
sales transactions have been recorded, what is the assertion, and test?
Occurrence
Test: Vouch a sample of entries in the sales
journal to shipping order/ sales order
Auditor undertakes STOT to find out whether
all sales that were made were actually recorded, what is the assertion, and test?
Completeness
Test: Trace a sample of shipping orders/ sales orders and to the sales journal