Performing

substantive test
ming

Reporter: xx Date: 2019.6.14

 Determine
Set desired level of Assess inherent
Assess control risk acceptable level of
audit test risk detection ris

Consideration of Performing
AUDIT PLANNING
internal control substantive tests
Substantive tests-are audit procedures designed to substantiate the account
balances or to detect material misstatementsin the financial ssstatements.
Two types of substantive test, namely analytical procedures and test of detauls.
1. Analytical procedures maybe used in planning, testing and over all review
stages of the audit. This test enable to obtain corroboratuve evidences about
a. Particular account.
2. Test of details involves examining the actual details making up the various
account balances.
Effective and
Substantive test
1. Nature of substantive test- relates to the quality of
evidence.
2. Timingbof substantive test- maybe performed at
interim date or at year end.
3. Extent of substantive test- relates to the amount of
evudence needed to satisfy a particular objective.
Relationship between substantive test and test of control

Tests of controls provide evidence that

indicates a misstatementis likely to occur.
Substantive tests provide evidence
about the existence of misstatement in
an account balance.
AUDIT EVIDENCE
The auditor should obtain sufficient appropriate
evidence to be able to draw reasonable conclusion
on which to based on audit opinion.

EVIDENCE refers to the information obtained by

the auditor in arriving at the conclusions on which
audit opinion is based.
UNDERLYING ACCOUNTING DATA- refers to the
accountingbrecordsunderlying the financial statements.

CORROBORATING INFORMATION- supporting

underlying accounting data obtained from client and other
sources.

QUALITIES OF EVIDENCE- Audit evidence typically

obtained as a results of performing test of control and
substantive test.when obtaining audit evidence from
either test of control or substantive test, the auditor should
consider the suffeciency and appropriateness of audit
SUFFICIENCY refers to the amount of evidence that
the auditor should accumulate. The following factors
maybe considered in evaluating the sufficiency of
evidence.
1. The competence of evidence- the amount of
evidence that is sufficient in a given situation varies
inversely with the competence of evidence.
2. THE MATERIALITY OF THE ITEM BEING
EXAMINED- the more material the financial statement
amount being examined,the more evidence will be
needed to support its validity.
3.THE RISK INVOLVED IN A PARTICULAR
ACCOUNT- as the risk of misstatement in a particular
account increases, the more evidence will be needed.
4. EXPERIENCE gained during previous audit may
indicate te amount of evidence taken before and
whether such evidence was enough.

APPROPRIATENESS is the measure of the quality of

audit evidence and its RELEVANCE to a particular
assertion and its RELIABILITY.
RELEVANCE relates the timeless of evidence and its
ability to satisfy the audit objective.RELIABILITY
relates to the objectivity of evidence and is influenced
by its source and by its nature. The ff. Generalizations
could help the auditor in assessing the reliabilty of
audit evidence:
1. Audit evudence obtained from independen outside
sources.
2. Audit evudence generated internally is more reliable
when the related accounting and internal control
systems are effective.
3. Audit evidence obtained directly by the auditor is
more reliable than that obtained from the entity.
4. Audit evidence in the form of documents and
written representations is more reliabke than oral
presentations.

COST /BENEFIT CONSIDERATION WHEN

OBTAINING EVIDENCE- An auditor works within
economic limits. The auditor's opinion to be
economically useful must be formed within reasonable
peiod of time.
AUDIT DOCUMENTATION/WORKING PAPERS - The
sufficient appropriate evidence requited by the professional
standards must be clearly documented in the auditors working
papers. WORKING PAPERS are records kept by the auditor
that documents the audit procedures applied, information
obtained and conclusions reached.

FUNCTIONS OF THE WORKING PAPERS:

1. Working papers are prepared PRIMARILY to:
A. Support the auditors opinion on financial. Statements.
B. Support the auditors representation as to compliance with
PSA.
C. Assist the auditor in the olanning ,performance,review and
supervision of the engagement.
2. SECONDARILY,working papres also assist the audidtor in:
A. Planning future audits.
B. Providing information useful in rendering other service
( MAS or tax consultancy)
C. Providing adequate defense in case of litigation.
2. FORMS, CONTENT AND EXTENT OF AUDIT
DOCUMENTATION- It necessary nor practicable to document
every matter the auditor considers during the audit. The auditor
should consider what would enable an experienced auditor,
having no previous connection with the auditt, to Understand:
A.) The nature ,timing, and extent of the audit
procedures performed to comply with the PSAs and
applicable legal and regulatory requirements;
B.) The result of the audit procedures and the audit
evidence obtained;and
C.) Significant matters arising during the audit and the
conclusions reached thereon.
THE SIX FACTORS SUCH AS:
1. The nature of the audit procedures to e performed;
2. The identified risk of material misstatements;
3. The extent of judgements required in performing the
work and evaluating the results;
4. The significance of the audit rvidence obtained;
5. The nature and extent of exceptions identified;
6. The audit methodology and tools used.

THE FF. IMPORTANT ITEMS WOULD NORMALKY

REQUIRE AUDIT DOCUMENTATION:
1. Significant matters
2. Depart from a asic princiole or an essential
procedure
3. Nature , timing and extent of audit procedures
performed.
3. CLASSIFICATION OF WORKING PAPERS- are typically
classified into permanent file or current working paper file:
1.PERMANENT FILE- contains information of continuing
significance to the auditor in performing recurring audits. this
file would most k
Likely include:
A. Copies of the articles of incorporation and by laws
B. Major contracts
C. Engagement letter
D. Organizational chart
E. Analyses of long term accounts such as plant assets, long
term liabilities and stockholders accounts.
F. Internal contro analyses
2. CURRENT FILE- contains evidence gathered and
conclusions reached relevant to the audit of a particular
year.
This file would normally include:
A. A copy of financial statements
B. Audit program
C. Working trial balance
D. Lead schedules
E.detailed schedules
F. Correspondence with other parties such as lawyers,
customers, banks, and management.
4. OWNERSHIP OF WORKING PAPERS- are the
property of auditor and the client hs no right to the
working papers prepared by the auditor.
5. CONFIDENTIALY OF WORKING PAPERS- re the
personal property of the auditor, these working papers
can not be shown tobthird parties without the clients
permission.
6. RETENTION OF WORKING PAPERS- SHould
retained by the auditor for a period of time sufficient to
meet the needs of his practice and to satisfy any
pertinent legal requirement s of record retention.
7. GUIDELINES FOR THE PREPARATIONS OF
WORKING PAPERS- SHOULD BE PROPERLY
ORGANIZED TO FACILITATE THIER REVIEW.
the ff. Techniquesbmay be used by the auditor
when preparing working papers.
A. Heading
B. Indexing
C. Cross- indexing
D. Tick marks
AUDITING ACCOUNTING ESTIMATES- As defined by PSA
540, 'accounting estimate' means an approximation of the
amount of an item in the absence of a ptecise means of
measurements.

The auditor must be specifically careful in considering

accounts that are affected by accounting estimates because
the risk of material misstatement is greater When accounting
estimates are involved.

AUDITORS RESPONSIBILTY- Management is responsible

for making accounting estimates included in The financial
statements.
The auditor responsibility is to obatined sufficient
appropriate evidence as to whether
1. accounting estimate is properly accounted for and
disclosed;and
2. Accounting estimate is reasonable in the
circumstances.

THE THREE APPROACHES IN AUDITORS

RESPONSIBILITY
1. Review and test tge process used by management
to develop the estimate.
MANAGEMENT RESPONSIBILITY-IS
responsibkebfor the identification and disclosure of
related parties and transaction with such parties.

USING THE WORK OF AN AUDITORS EXPERT-

THE auditors education and experience enbke the
auditor to be knowledgeable vabout business matters
in general.

EXPERT- is a person or firm possessing special skill,

knowledge and experience in a particular field other
tan accounting and auditing.
PSA 620 Identifies TWO KIND OF EXPERTS NAMELY:
1. AUDITORS EXPERTS
2. MANAGEMENTS EXPERTS

EVALUATING THE UDITORS EXPERTS- after concluding

that the help of auditors experts is needed to assist the
auditor in obtaining sufficient appropriate evidence, the
auditors must:
A. Assess the competence and objectivity of the expert.
B. Understand the field of the expertise of the auditors
expert.
C. Establish the items of the agreement with the expert.
EFFECT OF THE RELIANCE ON EXPERTS WORK
ON THE AUDIT REPORT- the auditor has sole
responsibility for the audit opinion expressed, and that
responsibility is not reduced by the auditors used of
works.

The auditor should not refer to the work of an auditors

expert in an auditors report containing an
UNMODIFIED OPINION. When the auditors report
contains a MODIFIED OPINION, the auditor can make
reference.
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