Substantive Audit Procedures

When it comes to audit evidence, auditing standards require auditors to obtain audit evidence that is sufficient and appropriate. While the sufficiency of audit evidence relates to its quantity, its appropriateness depends on its quality. The reason why auditors obtain the evidence is to form an opinion on whether the financial statements present a true and fair view and are free from material misstatement. Then they provide this audit opinion in the form of an audit report which accompanies the financial statements of the company in the annual report.

Auditors use various procedures to obtain audit evidence. Firstly, auditors use a test of control, which they use to evaluate the operating effectiveness of the internal controls employed by the company. The purpose of the test of controls is to check whether the internal controls are effective in preventing or detecting and correcting any material misstatements in the financial statements of the company. The other type of audit procedures that auditors use in obtaining audit evidence is substantive audit procedures.

What is Substantive Audit Procedures?

Substantive audit procedures are auditing techniques used to obtain audit evidence in order for auditors to conclude whether financial statement line items are free from material misstatement. In short, substantive audit procedures include auditing procedures used by auditors to support their opinion and gather audit evidence. It is different compared to the test of controls used by auditors.

While both of these methods of obtaining audit evidence are important, auditors must always apply substantive audit procedures. On the other hand, auditors may choose not to use the test of controls in some circumstances. For example, if the auditor determines that substantive testing is more efficient or effective in obtaining audit evidence, then they may only use them. Similarly, for some clients, auditors cannot rely on the internal control systems of the client and, therefore, use only substantive audit procedures.

Furthermore, ISA 330 – The Auditor’s Response to Assessed Risks requires auditors to always carry out some substantive audit procedures on material items. According to the standard, auditors must carry out procedures to agree with the financial statements to the underlying account records and examine material journals and other adjustments used in the preparation of financial statements.

Types of Substantive Audit Procedures

When it comes to different substantive audit procedures that auditors can apply during the course of the audit, they can use two types of substantive audit procedures. These are the substantive analytical procedures and tests of details. Both of these are different from each other.

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Substantive Analytical Procedure

According to ISA 520, the definition of analytical procedures is as follows.

“Evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount.”

Auditors have the option to use tests of details or analytical procedures during substantive audit procedures. The standards even allow them to use analytical procedures instead of a test of details if they consider the use of these procedures can be more effective or efficient than tests of details in reducing the risk of material misstatements to an acceptably low level at the assertion level.

The main goal of using analytical procedures during an audit is to assess the reasonableness of figures reported in the financial statements. With analytical procedures, auditors don’t look for details of individual transactions or purchases but rather the total figure. So, if they check supporting documents for a sample of transactions with a test of details, with analytical procedures, they test the total amount.

However, analytical procedures can also have some disadvantages, specifically if used on their own. For example, auditors can check the reasonableness of a financial statement item, though it does not guarantee the underlying accounting records do not have any material misstatements. Therefore, auditors still need to use a test of details for items they consider material or where they believe only using analytical procedures does not suffice.

Usually, auditors only use substantive analytical procedures out of the two substantive audit procedures when they perform a test of controls of the client and find it satisfactory. In that case, the auditors may only rely on substantive analytical procedures to provide sufficient appropriate audit evidence.

With substantive audit procedures, auditors first need to develop an independent expectation of what an amount should be. They can base this expectation on historical information or trends or any other expectation based on their professional judgment. They can then compare the actual amount with the expected amount to check for any differences.

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Usually, auditors also need to define a threshold for differences beyond which they must investigate the differences. Once they calculate a difference, they can check it against the set threshold and investigate if it exceeds it. Auditors can base their threshold on figures such as materiality or performance materiality. Based on their investigations, they can then draw conclusions related to the figure tested.


For example, for sales, auditors can compare the sales figure in the Income Statement of the client with previous years’ figures to check how much it has changed and if the change is in line with the auditors’ expectations. Similarly, auditors can also check the revenues of the client in comparison to its cost of sales or gross profits to verify if the amount has changed as expected.

Through this, auditors can get valuable insights into what has changed for the client over the accounting period. If they find any differences that are above a predetermined threshold, they can investigate them through the client’s management to verify if the changes are reasonable. If the changes are below the set threshold, that does not mean the individual sale transaction will be free from material misstatements. Auditors must use their professional judgment to determine whether they should perform a test of details on sales.

Substantive Test of Details

Substantive test of details consists of procedures used to verify individual transactions and balances. When performing a test of details, auditors evaluate the supporting evidence for individual transactions such as inspecting sales invoicing to check the details of the supporting documents. Auditors use audit sampling to select a sample size of transactions on which they can perform tests.

The test of details provides auditors with a great tool to check for particulars of transactions. They can customize these tests according to each financial statement item they are testing to verify the related information. Through a test of details, auditors can further confirm or verify the assertions used by management in the preparation of financial statements.

Test of details consists of various procedures that auditors perform. For example, it includes the process of vouching. This involves tracing financial statement items to their source documents and matches the details with the accounting records. Vouching is the most common and most reliable type of test of details that auditors perform.

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Furthermore, the test of details can include tracing, which is the opposite of vouching. During the process, auditors trace source documents to check whether they exist in the accounting records. With this type of substantive test of details, the assertions that auditors test are different as compared to those tested with vouching.

Substantive test of details also includes confirmations. Another name for this is circularization. With this type of test of details, auditors send written documents to third-parties such as banks, receivables, and payables, asking them to confirm their balance with the client. Confirmations are one of the most reliable forms of audit evidence.

There are even more types of substantive tests of details that auditors may use. However, with all of them, the goal is common, to verify individual balances or transactions. Substantive test of details is the primary procedure used by auditors to check for the risk of material misstatements in the financial statements.


When testing the sales of a client, auditors will use tests of details. For sales, they will use vouching, to check if the transactions within total sales have proper supporting documents. They may also match the details in these documents in other supporting documents. For example, they compare the details in sales invoices with goods delivery notes or sales orders.

Similarly, they will use tracing. With this, auditors will select a sample of invoices and check for posting in the accounts. With this procedure, auditors can verify the completeness of the sales figure reported in the financial statements. Some other substantive tests of details such as confirmation may not relate to sales directly. However, auditors can use them to confirm accounts receivable balances that relate to sales.


Auditors need to obtain audit evidence related to the financial statements of a client that is sufficient and appropriate. Therefore, they need to perform audit procedures which include a test of controls and substantive audit procedures. Substantive audit procedures have a further two types, which include substantive analytical procedures and test of details. Both of these are different from each other, as explained above.

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