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Substantive tests

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Substantive tests

  • This topic has 5 replies, 2 voices, and was last updated 12 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • November 17, 2012 at 8:34 am #55403
    edmundchan
    Member
    • Topics: 16
    • Replies: 6
    • ☆

    Dear Mike,

    I understand that substantive tests are designed to ensure that the amounts shown in the F/S are correctly shown , not accuately show. Would you mind advisng me what is the difference in meaning between accuracy and correctness of amounts. And, what tests are usually involved to check against the accuracy of an amount stated? Thanks

    November 17, 2012 at 4:11 pm #107697
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    I’m not sure I understand why you’re concerned with either “accurate” or “correct”. The auditor is concerned with neither! An auditor carries out such tests as they consider necessary to provide them with “reasonable assurance that the financial statements are free from material misstatements”

    I would be very reluctant to use either “accurate” or “correct” in an exam answer unless I were to include a negative in the sentence!

    November 18, 2012 at 2:42 am #107698
    edmundchan
    Member
    • Topics: 16
    • Replies: 6
    • ☆

    Thank you for your kind reply.

    What I am confused about is the accuracy assertion for both the transactions and the balances in the F/S. By accuracy assertion, do we mean that the balance or transactions are neither overstated nor understated in amount? If the tests results for accuracy against, say, the balance, are not satisfactory, could we say that the balance incorrect or just inaccurately stated?

    May I have your kind help again?

    November 18, 2012 at 9:58 am #107699
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Ah! Now I’m with you!. I believe that my earlier post referring to the extract from a “standard” audit report is relevant. “….reasonable assurance that the financial statements are fre from material misstatement …” The word “material” is quite crucial here. We, as auditors, are not claiming accuracy / correctness. We’re merely saying that the figures in the financial statements are “pretty close” and they’re “based on fact”.

    When conducting substantive audit tests, the auditor is looking for “accuracy” but not in the sense of absolute correctness of amount. More in the nature of “free from material misstatement”

    Does that answer it?

    November 18, 2012 at 11:15 am #107700
    edmundchan
    Member
    • Topics: 16
    • Replies: 6
    • ☆

    Dear Mike,

    Thank you very much for your kind guidance.

    Am I to understand that the accuracy assertion refers to transactions/ balance amounts, while the existence/ occurence and completeness assertions are related to the transcations themselves, not the amounts?

    Thanks.

    November 18, 2012 at 10:42 pm #107701
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    No, I don’t believe that that is a fair summary.

    Surely accuracy relates to classes of transaction as well as balances.

    Accuracy merely means that the balance or total of class of transactions is materially justifiable.

    Absolute accuracy is a luxury rarely allowed to an auditor. But, as auditors, we can arrive at a conclusion that implies that a balance or a total of a class of transactions is “pretty close” within material variations

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