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
10.2 Substantive Procedures
Paragraph #
Relevant Extracts from ISAs
330.18 Irrespective of the assessed risks of material misstatement, the audi<strong>to</strong>r shall design and
perform substantive procedures for each material class of transactions, account balance, and
disclosure. (Ref: Para. A42-A47)
330.19 The audi<strong>to</strong>r shall consider whether external confirmation procedures are <strong>to</strong> be performed as
substantive audit procedures. (Ref: Para. A48-A51)
330.20 The audi<strong>to</strong>r’s substantive procedures shall include the following audit procedures related <strong>to</strong>
the financial statement closing process:
(a) Agreeing or reconciling the financial statements with the underlying accounting records;
and
(b) Examining material journal entries and other adjustments made during the course of
preparing the financial statements. (Ref: Para. A52)
330.21 If the audi<strong>to</strong>r has determined that an assessed risk of material misstatement at the assertion
level is a significant risk, the audi<strong>to</strong>r shall perform substantive procedures that are specifically
responsive <strong>to</strong> that risk. When the approach <strong>to</strong> a significant risk consists only of substantive
procedures, those procedures shall include tests of details. (Ref: Para. A53)
330.22 If substantive procedures are performed at an interim date, the audi<strong>to</strong>r shall cover the
remaining period by performing:
(a) substantive procedures, combined with tests of controls for the intervening period; or
(b) if the audi<strong>to</strong>r determines that it is sufficient, further substantive procedures only,
that provide a reasonable basis for extending the audit conclusions from the interim date <strong>to</strong>
the period end. (Ref: Para. A54-A57)
330.23 If misstatements that the audi<strong>to</strong>r did not expect when assessing the risks of material
misstatement are detected at an interim date, the audi<strong>to</strong>r shall evaluate whether the related
assessment of risk and the planned nature, timing or extent of substantive procedures
covering the remaining period need <strong>to</strong> be modified. (Ref: Para. A58)
Substantive procedures are designed by the audi<strong>to</strong>r <strong>to</strong> detect material misstatements at the assertion level.
There are two types of substantive procedures, as set out below.
Exhibit 10.2-1
Procedure
Tests of Details
Substantive
Analytical
Procedures
Description
Procedures designed <strong>to</strong> gather evidence that will substantiate a financial statement
amount. They are used <strong>to</strong> obtain audit evidence regarding assertions such as
existence, accuracy, and valuation.
Procedures designed <strong>to</strong> substantiate a financial statement amount by using predictable
relationships among both financial and non-financial data. They are mostly applicable
<strong>to</strong> large volumes of transactions that tend <strong>to</strong> be predictable over time.