Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> 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 <strong>to</strong> assessed
risks at the assertion level.
Substantive Procedures
Substantive procedures are performed by the audi<strong>to</strong>r <strong>to</strong>:
• 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 <strong>to</strong>:
• Recalculate recorded amounts for accuracy;
• Confirm existence of balances (receivables, bank accounts, investments, etc.);
• Ensure transactions are recorded in the right period (cu<strong>to</strong>ff 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 (inven<strong>to</strong>ry counts); and
• Review the adequacy of allowances made for loss of value (doubtful accounts and obsolete inven<strong>to</strong>ry).
Tests of Control
Tests of controls are performed by the audi<strong>to</strong>r <strong>to</strong> gather evidence as <strong>to</strong> the operational effectiveness 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 <strong>to</strong>:
• 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).