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Hi tutor i have a question onsubstantive procedure.
I saw some of the procedure include: review board minutes for authorisation.
According to what I understand, authorisation should be part of the test of control as it is an internal control procedure. While the substantive procedure is used to detect material misstatement in the financial statement.For example: when there is an addition in the non-current asset, should review board minutes for authorisation. How the authorisation of the board can relate to using as part of the substantive procedure to detect material misstatement in financial statement?
Please correct me if I am wrong. Thank you.
“Authorisation” is a control activity. For purchases/payables/payments cycle, the auditor may carry out tests of controls relating to the authorisation of new suppliers, payment of invoices, etc – if TOCs show these controls to be operating effectively, the auditor can rely on them and designing the nature, timing and extent of substantive procedures.
But when it comes to non-current asset/PPE additions, there may be relatively few transactions – i.e. low volume but high value. Even if the auditor were to perform tests of controls, some individual purchases (at least) are likely to be sufficiently material that they should be verified substantively (maybe even 100%). In this case, checking that the purchase was authorised by the board provides evidence about the financial statement assertion of occurrence – i.e. that the transaction occurred and related to the entity.
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