- substantive testing
- Auditing procedures that evaluate the accuracy, completeness, and existence of amounts stated in *general ledger accounts and financial statements. Substantive testing involves the auditing of quantifiable amounts (individual transactions as well as accumulated balances). The substantive testing of the purchase of a *long-term asset, for example, may include the following: (i) *physical inspection of the asset, (ii) reference to a Vendor’s invoice, (iii) verification of delivery documentation, (iv) tracing of related disbursement records, and (v) ascertaining that the asset is recorded in an appropriate general ledger account. Substantive testing also includes *analytical review procedures, in which general ledger or financial statement items are evaluated for reasonableness, and the logical nature of their interrelations over time is assessed. Analytical review procedures apart, detailed substantive testing can be time-consuming, and for most audits only a sample of items in an *auditing population can usually be tested. Auditors therefore rely on either Statistical or judgmental sampling techniques, or a combination of the two, to test items substantively. Auditors tend to extrapolate their findings from sample testing to the auditing population as a whole. Further, auditors undertake Compliance testing of internal controls, on the assumption that satisfactory controls and procedures reduce the risk of incorrectly extrapolating the findings of tests on sampled items. In practice, therefore, auditing often comprises a combination of substantive and compliance tests: the balance between the two types of testing is determined by factors like the volume of transactions to be tested, and the sophistication and reliability of an entity’s internal controls.
Auditor's dictionary. 2014.
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