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Designing and performing substantive procedures

Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.

In designing and forforming subtstantive procedure following poits has to be kept in mind.


Reflected fact

This requirement reflects the factsthat:


Assesment of risk is jugemental

The auditor’s assessment of risk is judgmental and so may not identify all risks of material misstatement.


Inherent limitaions to internal control system

There are inherent limitations to internal control, including management override.


Auditor may determine

Depending on the circumstances, the auditor may determine that:


Is substantive analytical procedure is enough?

Performing only substantive analytical procedures will be sufficient to reduce audit risk to an acceptably low level. For example, where the auditor’s assessment of risk is supported by audit evidence from test of controls.


Is test of details are enough?

Only tests of details are appropriate.


Is Combination of Sunstantive analytical and test of details better

A combination of substantive analytical procedures and tests of details are most responsive to the assessed risks.


SA 520 Substantive analytical procedure is suitable to large volumes of transaction

Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time. SA 520, “Analytical Procedures” establishes requirements and provides guidance on the application of analytical procedures during an audit.


Relvence of nature of risk

The nature of the risk and assertion is relevant to the design of tests of details.

For example, tests of details related to the existence or occurrence assertion may involve selecting from items contained in a financial statement amount and obtaining the relevant audit evidence. On the other hand, tests of details related to the completeness assertion may involve selecting from items that are expected to be included in the relevant financial statement amount and investigating whether they are included.


Increase in the extent of substantive procedure

Because the assessment of the risk of material misstatement takes account of internal control, the extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory.


Not just limited to sample size

In designing tests of details, the extent of testing is ordinarily thought of in terms of the sample size. However, other matters are also relevant, including whether it is more effective to use other selective means of testing.

Substantive Procedures Related to the Financial Statement Closing Process


The auditor's substantive procedures shall include the following audit procedures related to the financial statement closing process:



Reconciling the financial statements with the underlying accounting records and agreeing upon.


Examination of journal entry

Examining material journal entries and other adjustments made during the course of preparing the financial statements.



Significant material risk is assessed.

When the auditor has determined that an assessed risk of material misstatement at the assertion level is a  significant  risk,  then  auditor  shall  perform  substantive procedures 

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