Substantive Test Vs. Test of Controls.
Substantive Tests of Balance – an
How to choose between them? It is based on
the audit risk model – the higher the control
risk assessment, the more substantive
procedures performed.
Test Control
 Is an audit procedure to test the
effectiveness of a control used by a
client to prevent or detect material
misstatements.
 General Classification of test controls:
1. Reperformance – Auditors may
initiate a new transaction, to see
which controls are used by the
client and effectiveness of the
controls.
2. Observation – Auditors may
observe a business process in
action, and in particular the control
elements of the process.
3. Inspection – auditors may examine
business documents for approval
signatures, stamps, or review check
mark, which indicate that controls
have been performed.
Substantive Test
 Is an audit procedure that examines the
financial statements and supporting
documentation to see if they contain
errors. These tests are needed as
evidence to support the assertion that
the financial records of an entity are
complete, valid and accurate.
 3 types of Substantive Test
1. Substantive Test of Transaction –
auditors focuses on testing
individual transaction by verifying
them to supporting documentation.
2.
auditor focuses on substantiating
the ending balance of an account.
3. Analytical Procedures – using
comparisons and relationships to
assess whether account balance
appear reasonable.
Audit Evidence
- Audit evidence refers to
information or data use or collects
by auditors as part of their audit
works so that they could conclude
their opinion on whether or not
financial statements are prepared
in material respect and accordance
with the applicable financial
reporting framework.
Types of Evidences
1. Underlying Accounting Data – are
the books of entry and “source of
data” is the supporting document
based on which a transaction is
recorded.
2. Corroborating information – refers
to the documents and other
information supporting the entity’s
accounting data obtained by client
and other sources.
Qualities of evidence
1. Sufficiency – is the measure of the
quantity of audit evidence should
accumulate.
Factors that may be considered in
evaluating the sufficiency of
evidence:
a. The competence of evidence –
refers to the quality of the
evidence, regardless of whether
 the evidence is written, oral, or 1. Audit Evidence obtained from
observed. Written Evidence Independent Resources
includes the client’s books, 2. Effective accounting and internal
records, and other information control Systems
such as meeting minutes and 3. Audit evidence obtained directly by the
internal control manuals. Oral auditor
evidence is gathered during 4. Audit evidence in the form of
initial and subsequent inquiries documents and written
of the client’s employees and representations.
management. Observed
evidence includes watching the Cost/benefit consideration when obtaining
evidence.
client take the physical
inventory. As a guiding rule, there should be a rational
b. The Materiality of the item relationship between the cost of obtaining
being examined. The more the evidence and the usefulness of the information
financial statement amount obtained. Determining the appropriate type of
being examined is, the more evidence that should be obtained is a matter of
evidence will be needed to professional judgment.
support its validity. On the
other hand, if the account is
immaterial to the financial
statement, there is no need to
perform any procedure related
to that account.
c. The risk involved in a particular
account. As the risk of
misstatement in a particular
account increases, the more
evidence will be needed.
2. Appropriateness – is the measure of
the quality of audit evidence and its
relevance to a particular assertion
and its reliability.
Relevance relates the timeliness of
evidence and its ability to satisfy
the audit objective. Reliability
relates to the objectivity of
evidence and is influence by its
source and by its nature.

Generalization that may help an auditor in

Assessing the Reliability of Audit Evidence: