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Good Day,
I have read the article on tests of control and substantive procedures and I am still weak in answering questions on substantive procedures. I have noticed in the answers they use “review” and “compare”, can I please get some hints in going about answering SP questions?
Substantive tests can be classified as:
Analytical procedures
Enquiry and confirmation
Inspect
Observation
Recalculation and reperformance.Review and compare are only specific approaches to these. Eg inspect the aged receivables ledger and review for receivables >6 months’ old
Compare this years receivables collection period top last periods (analytical procedure).
‘Attend’ the stock take is necessary to observe it.
Tracing payments form the cash book to payables ledger is inspecting that the payments go properly from one to the other.
Carrying out a bank reconciliation is a reperformance
Assessing non-current assets for impairment is inspection.The verb you use depends on what you are doing and the detail in the scenario.
Sir gromit
how can we do substantive procedures for sales and purchases?
confuse with this area
can we do test of control in this area?
if mgmt put a control for sales
clear me sirExamples of substantive procedures for slaves and purchases are:
Analytical procedures. Compare to last year and to budgets. Compare GP% to last year.
Trace sales orders to despatch and invoices.
Trace invoices to orders
Trace invoices to receivables ledger
Trace purchase orders to grns and invoices
Trace entries in purchases account to invoices.
If there are controls in place you can test those.
For example
Inspect control account reconciliations
Inspect authorisations on purchase orders
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