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Hi sir, how do we know what the substantive procedures for each area of the financial statements is. For example, for revenue or for tangible assets . Because in my textbook it doesnt state those procedures. So are the procedures like standardized for each area.
That means if they ask us in the exam “what are the substantive procedures to check revenue at year end ”Can we just write a standard answer or will it vary from question to question ?
First you have to identify what the relevant assertions are. So for revenue, these would include completeness, occurrence, cut-off etc.
Each relevant assertion needs evidence to support it and the evidence is provided by substantive procedures. For example, completeness can be ‘attacked’ by:
Analytical procedures (compare this year’s revenue to last year’s and to the budget and also look at sales month to month to see if there are unexplained dips)
Tracing from sales orders all the way through to amounts in the revenue accountand so on.
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