[Anonymous]

So I’m going back over everything in my final preparations for AUD, I have once again come across the fact that I still do not have a good understanding of the differences between analytical procedures, test of details of transactions, and substantive procedures. Could someone who understands this stuff offer some input as to how to understand this stuff?

[Anonymous]

Analytical vs substantive: Analytical involves analyzing, thinking about things. Analyzing is sitting in your office leaning back in your chair with our eyes closed and telling your coworkers you're “thinking”. It's the easiest to do, but the last effective…cause taking naps with the excuse of thinking is not usually very effective. 😉

Substantive procedures have more substance to them. Substance is shitty – you gotta get down and dirty for this part. You're at the factory with sawdust flying everywhere to count how many pieces of inventory they have…or you're actually sitting up looking over columns of numbers from different reports and making sure one ledger matches the other, or that the shipping documents are all for real sales.

Not sure if that helps any lol. I usually just think “analyze” vs “substance”. 😐

And don't quote me on this, but i'm pretty sure that tests of details are a type of substantive procedures…or it's a synonym…not positive on that part.

[Jennifer241]

Substantive implies that you do “manual” checking.

There are two categories of substantive procedures – 1. analytical procedures and 2. tests of detail.

1. Analytical Procedures would mostly include analysis of various ratios and trends with respect to different relationship that persists between different ratios and balances (for example Gross Profit to Cost and so on). Analytical procedures also include budget variance and industry wide ratio analysis.

In real life, you have a budget. You budget your rent/house payments to be what you expect them to be. At the end of the year you calculate the total you paid for rent/house payments and compare that to what you budgeted. Any difference makes you go, hmmm what happened. Then you investigate further. This is an example of analytical procedures. It pin-points what is out of whack from what you expected things to be.

2. Tests of details, well it tests the details of the accounts. Focuses on the items that are contained in the financial statement account balances. The auditor may want to test accounts payable by examining a sample of individual invoices that make up the ending balance of accounts payable.

In real life -At the end of the year you get your statement showing how much interest you paid on your car loan and the outstanding balance you owe. What if you felt the balance was incorrect, how would you verify it? You would test the detail behind it. You know the beginning balance of your previous years statements, then each of your monthly invoices breaks down your principle payments you paid, so you subtract those principle payments from your beginning balance to get your calculated ending balance. You then would compare what you have determined it should be and compare it to what the loan statement for the current year end says. This is an example of a test of details. You are testing the details of your car liability for accuracy.

Note also that analytical procedures are applied in several different audit stages (planning, substantive, and final review), whereas tests of detail are only applied in the substantive testing stage.

Also analytical procedures are NOT required to be done on substantive testing, but it is in the other two areas.

AUD - Jan 9,13 Pass
REG - Aug 30,13 Pass
BEC - Oct 26,13 Pass
FAR - Dec 4,13 Pass

Licensed CPA in the state of Oregon

[Author]

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