[happygal]

1. When one is trying to pick whether to conduct test of controls and/or substantive procedures, how should the auditor choose to do which one?

Also, is is true that an auditor must do both even if it’s a little bit of one and more of the other. As far as my understanding goes test of controls includes Internal Control Testing (IRON) and if that is sufficient then substantive procedures (such as analytical substantive procedures and test of details do not need to be done); but if Control Testing is not efficient then because control risk is higher then the auditor should stop test of controls and move on to substantive tests like vouching, tracing, reconciling, analytical procedures, confirm, and examining based on management assertions.

2. And in this whole process where do Audit Procedures (Accounts Receivable, Accounts Payable, etc) fit in?

3. Also are analytical procedures and substantive analytical procedures the same thing (as in just the two names are used interchangeably)?

Thanks a lot!

[Biff-1955-Tannen]

1. Tests of controls will be used if the auditor assesses the control risk below maximum. They do tests of controls to be able to justify their assessment of control risk below the maximum.
If the auditor assesses control risk at the maximum, there is no need to test the controls. There is no need to test the controls because the auditor believes that the controls are so deficient that it is pointless to test them. Testing them will not result in a reduction in control risk, they are so deficient.

engagement acceptance > risk assessment/planning > substantive procedures > review

2. “Audit Procedures” will be Substantive procedures

3. Don't think of substantive tests like an actual procedure. Substantive tests is more of a step in the audit. Analytical and tests of details are the procedures performed during this “step” of the audit and what make up “substantive procedures”
Substantive testing will always be done in an audit, because…. well that is pretty much the audit. Analytical procedures and tests of details are substantive testing.
So to visualize this, if you were to have a venn diagram of substantive tests, “substantive tests” would be the main circle. Inside of that circle would be two other circles. One circle is “tests of detail”, the other is “Analytical procedures”.
If you don't do substantive testing, you've effectively done absolutely nothing during the audit.

“Substantive procures” and “analytical procedures” are not necessarily used interchangeably. “Substantive analytical” procedures will imply substantive procedures, but “analytical procedures” are also used in the Planning, and Review stage of the audit.

@Spartans92 ah ok gotcha

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Spartans92]

Hi happygal,

Analytical Procedures and substantive analytical procedure I believe are indeed used interchangeably. Test of control is used if there is IT involved because substantive testing is never sufficient alone when there is IT. However, if there is no IT you will decide based on the level of control risk. If management asserts that control is effective then you Have to test whether or not it is operative effectively as they claim, that is for F/S audit (required). If you test your control and deemed it as ineffective let's say then there is no purpose of testing it, it will be a waste of time and money, hence, doing substantive alone is better. Now keep in mind substantive procedures are broken into two (you have analytical and detail testing). Detail testing is more extensive and expensive you would only use it if analytical procedures are not effective. As far as the testing like vouch, trace etc that is testing for your assertion at the individual level such as Completeness, existence and so on. Now going to the AR and AP it depends on what the question or what the auditor is really looking for. For instance, if auditor wants to test whether or not AR exist then you are testing for management's assertion of Existence and you could do so with confirmation which is a substantive testing. But if the question ask you about internal controls over the AR then you could perhaps use observation. Notice, confirmation here is not allow because that is a substantive procedure. Hope that helps clarify a little bit. It really depends on what you are really trying to prove when it comes to the testing and procedures used. Also, keep in mind the level of assurance each procedures generate as I mention testing IC over AR, inquiry may also work but because the reliability is not too great you would use observation over it (or inspection if that is an option). Good luck!

Thanks for the correction Biff! I meant to say you have to do some test of control if IT is involved. Thanks for the clarification on the substantive analytical and analytical part too. But I guess its very clear when they have the “substantive” part to it referring to the substantive testing phase. You have a really good score there! Nice Job. Taking mine on monday.

BEC- PASS

[happygal]

@ Biff-1955-Tannen and @Spartans92 thank you so much for writing the explanations out!

[Author]

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