ACCY 405 Chap.11 Substantive Testing, Sampling and Completion
Substantive Testing, Sampling and Completion
Matching procedures to misstatements
The later part of Module II covers audit evidence, audit sampling, inventory, accounts payable, fraud and completing the engagement.
The course objectives state that procedures such as analytical procedures, confirmations, tracing and vouching differ in how well they detect non-existence, incompleteness, inaccurate valuation and inadequate disclosure, and that interpreting evidence and aggregating possible misstatement, including fraud, requires substantial professional judgment.
Analytical procedures and tests of details
An analytical procedure builds an expectation from plausible relationships and compares it with the recorded amount; the difference updates the assessed risk and residual detection risk, mainly non-sampling risk.
Tests of details apply techniques to individual items, such as inspecting invoices, observing assets, confirming with outsiders or recalculating totals, either for every item or for a sample.
Sampling and fraud responses
When a sample is used, the result is projected to the population with an allowance for sampling risk.
When fraud risk is identified, the monograph describes three responses: change the overall approach, alter what substantive tests are done, when and how many, and target management override, including journal entries to simple as well as complex accounts.
Completion
At completion the team runs final analytical procedures, judges the adequacy of disclosures, reassesses materiality, reviews significant judgments, evaluates audit differences and whether they were corrected, and communicates weaknesses and misstatements to management and those charged with governance.
Where the course applies this
The schedule attaches cases to several of these sessions and gives time in the final weeks to the team project, in which students plan and perform an attest engagement.
The procedure map, the sampling logic and the completion checklist in this chapter are the tools that project calls on.
What this chapter covers
- 01
Procedures and the misstatements they target
- 02
Vouching and tracing directions
- 03
Analytical procedures
- 04
Tests of details
- 05
Projecting a sample
- 06
Three responses to fraud risk
- 07
Journal entries and override
- 08
Completing the engagement
Worked example · free
Choose tests for an inventory existence risk
- 1State the likely direction of misstatement.
- 2Choose a test of details and its direction.
- 2Choose an analytical or business check.
- 1Say what result would change your view.
Key terms
- Substantive Procedure
- A procedure aimed at finding material misstatement in individual assertions, through analytics or tests of details.
- Analytical Procedure
- A test that compares an expectation built from plausible relationships with the recorded amount.
- Test of Details
- A technique applied to individual items or transactions in a balance, class or disclosure.
- Vouching
- Testing from a recorded item back to supporting evidence, which addresses existence or occurrence.
- Tracing
- Testing from source evidence forward to the records, which addresses completeness.
- Tolerable Misstatement
- The largest misstatement in a balance the auditor could accept while still reaching its objective.
- Audit Differences
- Misstatements identified during the audit, evaluated at completion for correction and effect.
Substantive Testing, Sampling and Completion FAQ
What is the difference between vouching and tracing?
Vouching starts from the recorded amount and looks for support, so it tests whether recorded items exist. Tracing starts from source evidence and looks for the record, so it tests whether anything is missing.
Why is a projected misstatement below the tolerable limit not always enough?
The projection is an estimate from a sample. The gap between it and the limit must also cover sampling risk, and a systematic cause behind the errors can make the projection misleading.
Why test journal entries in simple accounts?
Management can hide an override in any account. Looking only at complex or error-prone accounts would leave predictable blind spots, so simple accounts are examined too.
What happens at completion?
The team runs final analytical reviews, checks disclosures, reassesses materiality, reviews key judgments, evaluates uncorrected differences and communicates weaknesses and misstatements before deciding whether the evidence supports the opinion.
How can timing strengthen evidence against fraud?
Moving work closer to or after year-end, for example waiting for cash from major customers, produces evidence that is harder to fabricate than records prepared before the auditor arrives.
Exam move
Make a grid of procedures against misstatement types and fill it from memory, then check it against this chapter. For each procedure, add the test direction and one source outside management's records.
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