Substantive testing is audit work performed to detect material misstatements directly in the financial statements—by checking transactions, balances, and disclosures.
It answers: “Is this amount (or disclosure) actually correct?”
(Not “did the control work?”—that is TOC.)
Two main types of substantive procedures
1) Substantive analytical procedures
Auditor uses comparisons and ratios to identify unusual trends.
Example: Compare this year’s gross profit margin with last year and with industry; investigate big changes.
2) Tests of details
Auditor checks the supporting evidence for amounts.
Example: Select sales invoices and match to delivery orders and customer orders to confirm revenue is valid.
Simple examples by audit area
Cash & Bank: confirm bank balance (bank confirmation), check bank reconciliation, trace cash book to bank statement.
Receivables: send confirmation letters to customers, check subsequent receipts after year-end.
Inventory: attend stocktake, test inventory pricing and valuation, check for obsolete items.
Purchases/Payables: test supplier invoices, check unmatched GRNs, search for unrecorded liabilities.
Revenue: vouch sales to DO/invoice, perform cut-off tests (sales recorded in correct period).
When auditors do more substantive testing
Auditors increase substantive testing when:
- internal controls are weak,
- risk of material misstatement is high,
- there is significant judgment/estimation (e.g., impairment, provisions),
- fraud risk is higher.
If you tell me which topic you are studying (cash, inventory, revenue, payroll), I can write a Diploma-ready table: Assertion → Substantive test → Audit evidence.
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