Substantive Testing

Substantive testing is defined in auditing standards as “Those tests of transactions and balances, and other procedures such as analytical review, which seek to provide audit evidence as to the completeness, accuracy and validity of the information contained in the accounting records or in the financial statement”
The reliability of records is usually established by the auditor through investigation of the system of recording transactions. It is also established through investigating the system of internal control.

However, not all data can be verified through investing the systems of internal and accounting. Some transactions and data must be verified by use of direct evidence. This is usually referred to as substantive testing. Substantive testing can be applied to the following situations:

  • Where internal control system is weak and cannot be relied upon
  • Unusual or extra – ordinary or one – off transactions
  • All assets and liabilities at the balance sheet date

In practice the auditor has to consider the grounds of the effectiveness and cost of whether to rely on the systems of control. In some cases sufficient evidence can be got through analytical review. In some cases, a combination of internal control reliance, substantive testing and analytical review provides the necessary and required audit evidence.

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