What is the difference between test of details and substantive testing procedures in an audit?
The terms are used interchangeably, but technically, substantive testing procedures include test of details and analytical procedures. Test of details relates to obtaining source documentation and reconciling, tracing, vouching, etc. Analytical procedures relate more to using financial and nonfinancial information to derive expected balances and comparing to the actually reported balance.
Substantive procedures are performed to detect material misstatements at the relevant assertion level, and include tests of details of classes of transactions, account balances, and disclosures and substantive analytical procedures. The auditor should plan and perform substantive procedures to be responsive to the related assessment of the risk of material misstatement. In order to effectively determine appropriate substantive procedures, the auditor should understand the nature, extent, and timing of their respective applicability.
Nature – Substantive procedures include tests of details and substantive analytical procedures. Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time.
Extent – The greater the risk of material misstatement, the less detection risk that can be accepted; consequently, the greater the extent of substantive procedures. Because the risk of material misstatement includes consideration of the effectiveness of internal control, the extent of substantive procedures may be reduced by satisfactory results from tests of the operating effectiveness of controls.
Timing – In some circumstances, substantive procedures may be performed at an interim date. When substantive procedures are performed at an interim date, the auditor should perform further substantive procedures or substantive procedures combined with tests of controls to cover the remaining period that provide a reasonable basis for extending the audit conclusions from the interim date to the period end.
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