Page 29 - eBook Audit Of Financial Statement Components

2.1.2 SUBSTANTIVE PROCEDURES FOR EXPENDITURE

The audit programme for substantive procedures is prepared

based on preliminary assessment of control risks. The nature,

timing or extent of substantive procedures are based on the

For results of the tests of controls and the level of detection risk.

substantive However, the auditor may use professional judgement to
determine how detailed the substantive procedures are, and the
procedures,
auditors would normally perform more than the minimum level
auditors
of testing.
should

therefore plan
When inherent risk for purchase and payable transactions are
more carefully
high and their control risks are low, it is appropriate for auditor to
in terms of the
set a moderate level of detection risks to achieve the required
nature of the
audit risk. The level of detection risks influences the amount of
procedures to
procedures undertaken by auditors to ensure the existence and
ensure that occurrence of purchase transactions.

the type of

procedures Purchases and payables are susceptible to understatements,

are effective whereas sales and receivables are prone to overstatements. Thus,

to obtain auditors should place more concern over obtaining evidence to

appropriate determine the completeness of purchase and payable records.

audit evidence For substantive procedures, auditors should therefore plan more
carefully in terms of the nature of the procedures to ensure that
that the
the type of procedures are effective to obtain appropriate audit
purchases and
evidence that the purchases and payables are not understated.
payables are
When the planned level of detection risk is low, the most effective
not
substantive procedures should be performed.
understated.

Effective substantive procedures help to reduce the detection
risk when the possibility of material misstatements remaining

undetected in individual assertions is low.

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