18/03/20181E XE CUTIO N O F THE AUDIT – P E R F O R MING S UBS TANTIVE P R O CE DUR E STOPIC 8ISA(NZ) 200;240;315;500;501;505;520;530Overview Of Substantive Procedures & AssertionsNature, Timing and Extent of Substantive Procedures (incl. CAATs)Concluding & Documenting the Results of Audit Procedures Overview Of Substantive Procedures Definition: procedures designed to obtain direct evidence as to the completeness, accuracy and validity of data & other information contained in the financial statements.Overall objective: to supplement controls testing(TOC) the auditor may have performed in order todetermine that the underlying accounting recordsare materially correct and reconcile to the financialstatements that the auditor will ultimately form anopinion on.OVERVIEW OF SUBSTANTIVE PROCEDURESAR = f(IR, CR, DR)Figure 9.2 Linkage between inherent risk, control risk and detection risk> AP < TODOT, TODOB< AP >TODOT, TODOB
18/03/20182Audit risk model is modelled by this equation (from Chapter 4): AR = f(IR, CR, DR)•Which ones represent the risk of material misstatement (IR, CR)? •If IR and CR are low, will the auditor accept a low or a high DR? OVERVIEW OF ASSERTIONSe.g. the auditor needs to verify that sales transactions recorded in the income statement occurred and relate to the entity (occurrence assertion)ASSERTIONS ABOUT CLASSES OF TRANSACTIONS AND EVENTSASSERTIONS ABOUT ACCOUNT BALANCES AT YEAR-ENDASSERTIONS ABOUT PRESENTATIONS AND DISCLOSURETypicallyincome statementaccountsTypically balance sheet accountsDisclosuresmade in the financial statements1. OCCURRENCE1. EXISTENCE1. OCCURRENCE2. RIGHTS AND OBLIGATIONS2. RIGHTS AND OBLIGATIONS2. COMPLETENESS3. COMPLETENESS3. COMPLETENESS3. CUT OFF4. ACCURACY4. VALUATION AND ALLOCATION4. CLASSIFICATION AND UNDERSTANDABILITY5. CLASSIFICATIONThe auditor will need to perform extensive substantive procedures to provide SAE to reach a conclusion.This is often the case when auditing smaller businesses that do not have appropriate segregation of duties, or may not have internal controls in place for the entire period of relianceNATURE OF SUBSTANTIVE PROCEDURES Audit procedures that are designed to obtain as to the 1.Completeness2. Accuracy3.validity of data, and 4.reasonableness of estimates and other information contained in the financial statements.