What is the difference between test of controls and substantive procedures?
In simple terms, control tests involve checking that a client's control is working, whereas a substantive test involves ignoring client systems and just checking the numbers. An example: Companies try to ensure their cashbooks and bank statements are accurate by reconciling them.
As you can see, a test of details is just what it says it is. You are digging into the details of transactions. Substantive analytics, by contrast, look at numbers from a broader perspective. For example, the auditor might compute the current ratio or compare this year's debt level with prior years.
Audit procedures consist of tests of control and substantive procedures; 'audit procedure' is the global term. AEIOU can be used for substantive procedures. EIOU can be used for tests of control. (You can't use analytical procedures for tests of control.)
While a test of controls supports control risk assessment, a test of details is performed to support the overall audit opinion of a company's balance sheet and accompanying transactions. Tests of control are only performed when the auditor believes that the control risk is low, enabling them to verify this assessment.
A test of controls is an audit procedure to test the effectiveness of a control used by a client entity to prevent or detect material misstatements. Depending on the results of this test, auditors may choose to rely upon a client's system of controls as part of their auditing activities.
Controls are the technical, administrative or physical safeguards that exist to prevent, detect or lessen the ability of a threat to exploit a vulnerability. Procedure. Procedures are a formal method of doing something based on a series of actions conducted in a certain order or manner.
Substantive procedures in auditing are processes or methods that auditors use in order to find or prevent miscalculations in financial records. Substantive procedures often provide a record of some financial activity that alerts professionals that the activity is happening and documents it for further review.
Analytical procedures are used as substantive procedures when the auditor considers that the use of analytical procedures can be more effective or efficient than tests of details in reducing the risk of material misstatements at the assertion level to an acceptably low level.
There are two categories of substantive procedures - analytical procedures and tests of detail. Analytical procedures generally provide less reliable evidence than the tests of detail.
Control testing is an audit procedure used to determine whether internal controls effectively prevent or discover material misstatements at the appropriate assertion level. Control tests determine whether a policy or practice is well-designed to prevent or detect significant misstatements in a financial statement.
What is an example of substantive procedures?
Examples of Substantive Procedures
Inquire of management regarding the collectability of customer accounts. Match customer orders to invoices billed. Match collected funds to invoices billed. Observe a physical inventory count.
Examples of substantive testing
Verify that approved dividends exist by reviewing board minutes from the board of directors. Confirm that the balances in accounts payable are correct by contacting suppliers. Confirm that the balances in accounts receivable are correct by contacting customers.

Substantive testing is very different from testing controls. Substantive tests verify whether information is correct, whereas control tests determine whether the information is managed under a system that promotes correctness. Some level of substantive testing is required regardless of the results of control testing.
There is one reason, however, why you might not test controls even though they appear appropriate: substantive tests may take less time. Once risk assessment is complete, your responses—the further audit procedures—are based on efficiency and effectiveness. If control testing takes less time, then use this option.
The three types of substantive tests are analytical procedures, a test of details of transactions, and tests of details of balances.
Nature of Tests of Controls
The following tests that the auditor might perform are presented in the order of the evidence that they ordinarily would produce, from least to most: inquiry, observation, inspection of relevant documentation, and re-performance of a control.
- Preventive controls are proactive in that they attempt to deter or prevent undesirable events from occurring.
- Corrective controls are put in place when errors or irregularities have been detected.
- Detective controls provide evidence that an error or irregularity has occurred.
There are five main methods to walk through and test each control in place at the service organization. These methods include (listed in order of complexity from lowest to highest): inquiry, observation, examination or inspection of evidence, re-performance, and computer assisted audit technique (CAAT).
There are two basic categories of internal controls – preventive and detective.
An internal audit is a check that is conducted at specific times, whereas Internal Control is responsible for checks that are on-going to make sure operational efficiency and effectiveness are achieved through the control of risks.
What are the different control procedures?
The seven internal control procedures are separation of duties, access controls, physical audits, standardized documentation, trial balances, periodic reconciliations, and approval authority.
Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time. Tests of details are ordinarily more appropriate to obtain audit evidence for certain assertions, including existence, eligibility and valuation.
There are generally five accounting assertions that the preparers of financial statements make. They are accuracy and valuation, existence, completeness, rights and obligations, and presentation and disclosure.
04 Analytical procedures are used as a substantive test to obtain evidential matter about particular assertions related to account balances or classes of transactions. In some cases, analytical procedures can be more effective or efficient than tests of details for achieving particular substantive testing objectives.
Substantive testing may also be conducted by a company's internal audit staff. Doing so can provide assurance that internal recordation systems are performing as planned.
The intention behind performing the Substantive procedures by an auditor is to check that there is no material misstatement in the business's financial records, i.e., they are complete, accurate, valid, and all the material information is disclosed.
Substantive law establishes the rights and obligations that govern people and organizations; it includes all laws of general and specific applicability. Procedural law establishes the legal rules by which substantive law is created, applied and enforced, particularly in a court of law.
Substantive law is that part of the law which creates, defines, and regulates rights as opposed to objective or procedural law which prescribes the method of enforcing rights.
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Let's take a look at these steps individually.
- Inspection. ...
- Observation. ...
- Confirmation. ...
- Recalculation. ...
- Reperformance.
A substantive law defines a legal relationship or prohibits certain conduct. That is, it says what you can or cannot do. For example, a state that says, though shalt not steal. This would be a substantive law.
What are the three main types of substantive procedures?
Substantive procedures in auditing can include the following activities: Sharing account balances and transactions. Testing transaction classes. Making account records.
There are two categories of substantive procedures - analytical procedures and tests of detail. Analytical procedures generally provide less reliable evidence than the tests of detail.
The primary purpose of substantive analytical procedures is to obtain assurance, in combination with other audit testing (such as tests of controls and substantive tests of details), with respect to financial statement assertions for one or more audit areas.
Substantive testing is known as the phase of an audit where the auditor gathers samples to identify any material misstatements in the client's accounting records or other information. This proof is required to support the judgment that a company's financial records are complete, relevant, and accurate.
Substantive tests verify whether information is correct, whereas control tests determine whether the information is managed under a system that promotes correctness. Some level of substantive testing is required regardless of the results of control testing.
- Inspection. In this phase, the auditor checks the accounts payable or receivable transactions for potential misstatements and other relevant reporting standards.
- Observation. ...
- Confirmation. ...
- Recalculation. ...
- Reperformance.
There is one reason, however, why you might not test controls even though they appear appropriate: substantive tests may take less time. Once risk assessment is complete, your responses—the further audit procedures—are based on efficiency and effectiveness. If control testing takes less time, then use this option.