3/3/2019 ACCA F8 Substantive Testing - Part 1 | LSBF Blog

Careers and Employability Campuses Press and Media Search Language/Country

CALL US TODAY! +44 (0) 20 3535 1122

News
About Us Programmes Course Fees Faculty Study Online Students Blog Contact Us
Accountancy
About Us Programmes Course Fees Faculty Study Online Students Blog Contact Us
& Finance

Business &

Economy

Education &

Careers

Emerging

Home
Markets Blog Opinion & Features ACCA F8 Substantive Testing - Part 1

December 10 ,2013 | by Paul Merison

Entrepreneurs NEWS
Topic: Opinion & Features
Accountancy & Finance
& Startups
Business & Economy
ACCA F8 Substantive Testing - Part 1 Education & Careers
Innovation &
Emerging Markets

Technology Entrepreneurs & Startups

Innovation & Technology
Sustainable Sustainable Business
Women in Business
Business

Women in LSBF in the Headlines

Business

Online

Learning

In this first part of a two-part article aimed at students of the ACCA F8 paper, Paul Merison illustrates the differences between control
tests and substantive tests and explains how audit tests are aimed at testing the assertions in the financial statements …

How auditors get evidence

Before I focus on substantive testing, let’s make sure you understand the critical difference between control tests and substantive tests.
External auditors need to get sufficient evidence that the Financial Statements are free from material misstatement. They get this
evidence in 2 main ways:

Tests of Control, because if the client’s control system is working, then it seems fair to assume that the
financial statements are reasonably protected from mistakes;
Substantive Tests, where the auditor looks for physical evidence supporting the figures and disclosures in
the financial statements.
In simple terms, control tests involve checking that a client’s control is working, whereas a substantive test involves ignoring
client systems and just checking the numbers.

https://www.lsbf.org.uk/blog/opinion-features/acca-f8-substantive-testing-part-1/488 1/3
3/3/2019 ACCA F8 Substantive Testing - Part 1 | LSBF Blog
An example: SUBSCRIBE NOW
Companies try to ensure their cashbooks and bank statements are accurate by reconciling them. An auditor checks that the Your email:
reconciliations are being done regularly, and that problems are investigated and signed off as finalised by a senior staff member at the Enter email address...
client. This control test provides evidence that the client is checking their own figures.

The auditor then checks a sample of cashbook entries to ensure they are real, and agrees bank balances per the client with the bank SUBSCRIBE
itself – these are substantive tests to check the bank figure is accurate on the Statement of Financial Position.

Much of the real world works in a similar way – if I am a schools inspector, I will look at the school’s procedures manual and look for
evidence they are following it, because this tells me that the education provided is likely to be good quality, as it is well controlled. But I
Tweets by @LSBF
will also watch some classes myself and check pass rates on exams, to substantiate the quality of the education in a more direct way.
London School of Business &
Substantive Testing – Assertions Finance Retweeted

Edology
For each number or disclosure in the Financial Statements, auditors need to test a few things. These things to test are
@EdologyOnline
called “assertions” and depend on what item we are testing, but as a useful short cut remember this for anything you substantively
test: What are the fundamentals of
#marketing and how should you
Check that everything that should be included in the total, is indeed included (COMPLETENESS) balance them with current trends?
Check that everything that is included in the total, SHOULD be included (EXISTENCE for assets and Find out by joining @LSBF’s Online
liabilities, and that sales revenue and expense items have OCCURRED) Marketing Trends #webinar with
Check the number recorded is ACCURATE (or appropriately VALUED) Principal Lecturer, Cormac Austin,
Tuesday 12, March 17:00 UK time.
Tests/Procedures
Register today! buff.ly/2NtbWIQ
To test an assertion, auditors have a variety of testing techniques – a useful list for generating tests is AEIOU:

Analytical (compare the item with other things, such as prior year, industry average) Embed View on Twitter

Enquiry (ask directors, or better a 3rd

Party, to confirm information in writing)
Inspection (look at a document, or asset, or the ledgers/books of prime entry)
Observation (of an asset in use)
RecalcUlation (e.g. of depreciation)
Evidence

One final list that I find useful to think up ideas for tests is the 5 types of evidence, which I like to call DADA3:

Documents (invoices, GDNs, order forms, bank statements etc.)

Assets (which can be inspected to verify existence, and to assess value)
Directors (and other members of client’s staff, who can confirm things in written representations)
Accounting System (asset register, inventory list, cashbook, ledgers, sales day book etc.)
3rd Parties (lawyers, surveyors, bank, customers, suppliers etc., all useful independent people who can verify
things in writing about the client)

Now we have the essential knowledge and understanding, we can score some marks. But to score the big marks, we need to apply the
ideas in this article to generate the tests, and to explain them in sufficient detail. This will be discussed in detail in Part 2 of this article.

Paul Merison is LSBF London Director of ACCA

Already thinking about your next set of papers? Get a head start and study ACCA on campus or online.

A version of this article was published in PQ Magazine.

< Principal image, courtesy of ‘LordFerguson’ on Flickr / Some rights reserved >

https://www.lsbf.org.uk/blog/opinion-features/acca-f8-substantive-testing-part-1/488 2/3
3/3/2019 ACCA F8 Substantive Testing - Part 1 | LSBF Blog

Bio Latest Post

Paul Merison
Paul Merison is LSBF’s director of ACCA studies and brings to the institution over 17 years of experience in the
industry. Paul was named Accountancy Lecturer of the Year at the 2013 PQ Awards.

Related Post
Share

Comments
There are no comments posted yet. Be the first one!

Comment:

Write your comment here!

Name: Email: Website:

Displayed next to your comments Not diplayed publicly Optional

Submit Comment

QUICK LINKS
Popular Searches: Professional Qualifications: Undergraduate & Postgraduate Programmes: LSBF sites:
Career Support ACCA Courses Management Degree LSBF Manchester
Funding & Finance Masters in Finance Degree LSBF Singapore
Affiliate Programme Masters in Marketing Degree
Partners Online MBA Degree

E-mail: info@lsbf.org.uk | 2003 – 2019 © London School of Business & FinanceError Change cookie settings Site Map Online Study Accessibility Privacy Policy Terms and Conditions
loading MacroEngine script (file: )

https://www.lsbf.org.uk/blog/opinion-features/acca-f8-substantive-testing-part-1/488 3/3