A3-M6-Procedures to Obtain Evidence

Substantive tests are concerned with dollar amounts and consist of TODs of transactions and balances and analytical procedures. The objective of TODs of transactions performed as substantive tests is to detect material (dollar) misstatements in the F/S.

To determine whether transactions have been recorded (completeness), the auditor should trace from the source documents to the accounting records (GL, TB, etc.)

Inspection involves examining records or documents. The terms of inspection and examination are often used interchangeably in audit.

Comparing relationships among data, such as inventory balances to recent sales activities represents an AP.

APs involve developing an expectation (based on plausible relationships) and comparing recorded amounts or ratios based on recorded amounts to that expectation.

SAPs are often used when there is a large volume of predictable transactions. If the entity has diversified operations, the auditor likely should have disaggregated the population and performed multiple APs to avoid offsetting factors in the different aspects of the entity’s operations.

Relationships involving I/S accounts tend to be more predictable than relationships involving only B/S accounts b/c I/S accounts represent transactions over a period of time, whereas B/S accounts represent amounts as of a point in time. As a result, APs are more appropriate for operating expense accounts.

If the objective of a TODs is to detect overstatements of sales (existence), the auditor should vouch transactions from the accounting records to the source documents.

APs applied during the final review stage should be used to determine whether adequate evidence has been gathered in response to unusual or unexpected balances identified during the audit.