Definition
Substantive procedures test the numbers directly rather than the controls that produced them. They come in two forms: tests of details (vouching a sample of transactions, confirming a balance, counting inventory) and substantive analytical procedures (building an expectation and comparing it with the recorded amount). Both aim at misstatements that would matter to a user of the statements.
Why it matters in an audit or review
AU-C 330 requires substantive procedures for each relevant assertion of each material class of transactions, account balance and disclosure, no matter how low the assessed risk. Even a well-controlled area cannot be cleared on controls alone. Where risk is higher, the substantive work gets heavier, closer to year end, and more tailored.
Example
For a $3.4 million (illustrative) accrued liabilities balance, the auditor tests details by examining payments made in January for items belonging to December, and runs an analytical procedure comparing monthly accrual rates to prior periods. The first looks for specific unrecorded items; the second looks for patterns that do not fit.
Common mistakes
- Relying on analytical procedures alone for a high-risk assertion when the expectation is too imprecise to detect a material amount.
- Performing a full set of tests at an interim date with no roll-forward procedures to year end.
FAQ
Do substantive procedures replace tests of controls?
Not entirely. If controls are weak or will not be relied on, the auditor can rely on substantive procedures alone. Tests of controls never replace them, because AU-C 330 requires substantive procedures for every relevant assertion of each material class, balance and disclosure.
Sources
- AICPA, AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks
- AICPA, AU-C Section 500, Audit Evidence
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error