Substantive Procedures
The three types of procedures that make up substantive tests.
What are analytical tests, test of transactions, and test of balances.
The three components that affect substantive procedures
What is nature, timing and extent
The three categories of misstatements
What are factual, judgmental, projected
substantive procedures are designed to detect misstatements at what level and what do they support
what is assertion level, and to support management assertions
Eric Robles walks into the audit firm he just got a staff position at at the ripe age of 34. He says that because control risk and inherent risk are high, detection risk will also be high. Therefore, we will need to perform more effective tests, at year end, with larger sample sizes. Is he right?
Nope, detection risk would be low
Auditing standards state that auditors are required to perform substantive procedures for all __________ ________
What are relevant assertions
The purpose and type of substantive procedure
The three types of misstatements
If for an assertion we determine an effective response is performing test of controls what is that strategy called
what is reliance on controls strategy
If inherent risk is high but control risk is low, what level of persuasive evidence do we expect our substantive tests to collect
moderately persuasive
Define substantive procedures
What are "audit procedures designed to detect material misstatements at the assertion level and to gather evidence to support management assertions."
What is a roll-forward procedure
procedures performed at year-end on transactions occurring between an interim date and year-end to provide sufficient appropriate audit evidence on which to base conclusions at year-end when substantive procedures are performed at an interim date
A monetary amount for which the measurement is subject to an inherent lack of precision
What is an accounting estimate
when is a substantive test of details to test a cutoff assertion done
when is year-end
Kim just received $5 for performing certain services, the services were performed on December 31, but Kim recognizes revenue Jan. 1 the following year.
Erica is auditing Kim Corp. what is an example of a substantive procedure that she could perform to test what relevant assertion.
examine cash disbursements, inquiry of client, inspect invoices
cutoff
Ineffective internal controls, first-year audits, high control risk, nature of client's business
If we have low detection risk, what does that mean with individual respects to nature, timing, and extent.
What is more effective evidence, evidence collection at year-end, and larger sample sizes
inherent risk factors relating to estimates
- estimation uncertainty
- complexity
- subjectivity
Correctly identify which assertion the following scenarios are testing
1. Trace a sample of shipping documents to entry in the sales journal.
2. Examine a sample of warehouse removal slips for signature of authorized official.
3. Examine contract terms for large and unusual sales transactions to determine whether management has included adequate and understandable disclosures of those transactions in the footnotes to the financial statements.
4. Examine vendors’ invoices and other supporting documents to determine whether large amounts in the repair and maintenance account should be capitalized.
What is:
- occurence
- presentation
- accuracy, classification, valuation
- accuracy
For this item, evaluate and explain whether it is a factual misstatement or a judgmental misstatement. Which accounts would be affected, and how, if an adjustment is made for each item?
At December 31, 2024, the balance of the Liability for Warranty Claims account was $100,000 (credit balance). During 2025, $150,000 of warranty claims was processed. Inspection of correspondence suggests that an additional $200,000 in warranty claims could result from ongoing disputes with customers. No adjustment for these claims has been made. Management has booked a warranty liability accrual at the end of December 2025 of $120,000.
Judgmental, warranty expense and warranty liabilty, debit and credit respectively by 200,000
Correctly identify whether the following scenarios are tests of controls, substantive test of transactions, substantive analytical procedures, or test of details of balances.
1. Trace a sample of shipping documents to entry in the sales journal.
2. Examine a sample of warehouse removal slips for signature of authorized official.
3. Examine contract terms for large and unusual sales transactions to determine whether management has included adequate and understandable disclosures of those transactions in the footnotes to the financial statements.
4. Examine vendors’ invoices and other supporting documents to determine whether large amounts in the repair and maintenance account should be capitalized.
What is:
- substantive test of transactions
- test of control
- substantive test of transactions
- test of details of balances
What two things goes into consideration when deciding the allowable difference the client's recorded amount and the auditor generated expectation?
What is materiality and persuasiveness of evidence
Give me at least two common items that auditors should inquire about relating to internal controls over accounting estimates
- governance
- specialized skills
- risk assessment
- information system
- control activities
-outcome of previous estimates
how are audit risk, management assertions, and substantive procedures linked?
An inverse relationship exists between the auditor’s assessed risk of material misstatement (combined inherent and control risk) and detection risk. When the risk of material misstatement is high, auditors will perform more substantive procedures to keep detection risk low. When the risk of material misstatement is low, auditors may perform less substantive procedures, which increases detection risk.
Assume that the client’s internal controls over the recording and classifying of fixed asset additions are considered deficient because the individual responsible for recording new acquisitions has inadequate technical training and limited experience in accounting. How will this situation affect the evidence Gaycob accumulates in auditing fixed assets as compared with another audit in which the controls are excellent? Be as specific as possible.
consult paper too lazy to type out