Page 118 - Internal Auditing Standards

Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts

10.1 Overview

This chapter outlines the characteristics and use of further audit procedures designed in response to assessed
risks at the assertion level.

Substantive Procedures
Substantive procedures are performed by the auditor to:

• Gather evidence regarding the underlying assertions (C, E, AC, V) that are embedded in the account
balances and underlying classes of transactions; and
• Detect material misstatements.

Typical substantive procedures include selection of an account balance or a representative sample of
transactions to:
• Recalculate recorded amounts for accuracy;

• Confirm existence of balances (receivables, bank accounts, investments, etc.);
• Ensure transactions are recorded in the right period (cutoff tests);
• Compare amounts between periods or with expectations (analytical procedures);

• Inspect supporting documentation (such as invoices or sales contracts);
• Observe physical existence of recorded assets (inventory counts); and

• Review the adequacy of allowances made for loss of value (doubtful accounts and obsolete inventory).

Tests of Control
Tests of controls are performed by the auditor to gather evidence as to the operational eff ectiveness of
internal control procedures that:
• Address specific assertions where reliance on controls is planned; and

• Prevent or detect/correct material errors or fraud from occurring.

Typical tests of controls include the selection of a representative sample of transactions or supporting
documentation to:
• Observe the operation of an internal control procedure being performed;

• Inspect evidence that the control procedure was performed;
• Inquire about how and when the procedure was performed; and

• Re-perform the operation of the control procedure (such as where the information system is
computerized).

Evidence on control operation may also be gathered using computer-assisted audit techniques (CAATs).

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