What does substantive procedures mean on the CPA exam?
Substantive procedures. Work aimed directly at detecting misstatement in a balance or disclosure, as opposed to testing whether a control operated. Some are required on every material class regardless of control reliance.
Defined against AU-C 330.18.
Which CPA exam sections use substantive procedures?
Substantive procedures appears in the AUD section of the CPA exam.
What is the difference between substantive procedures and tests of controls?
A test of controls asks whether a control operated effectively. A substantive procedure asks whether the amount is correct. Testing controls is optional unless substantive procedures alone cannot provide sufficient appropriate evidence, and it is only worth doing when the auditor intends to rely on the control. (AU-C 330)
Other terms defined against AU-C 330
- dual-purpose test: One procedure that tests a control and substantively tests the transaction at the same time, on the same sample.
- further audit procedures: The work done in response to assessed risk: tests of controls and substantive procedures.
- nature, timing, and extent: The three dials on any audit procedure: what kind of test, when it is run, and how much of the population it covers.
- operating effectiveness: Whether a control actually worked across the period, as opposed to whether it was well designed.
- selecting specific items: Choosing particular items to examine because of what they are, such as large or unusual ones, rather than at random.
- tests of controls: Procedures that check whether a control actually operated as described throughout the period.
- tests of details: Substantive procedures aimed at individual transactions, balances or disclosures, rather than at the relationships between numbers that analytical procedures examine.
Related terms
- risk assessment procedures: The audit procedures designed and performed to identify and assess the risks of material misstatement at the financial statement and assertion levels.
- analytical procedures: Evaluations of financial information by studying plausible relationships among financial and nonfinancial data.
- audit procedures: The specific work performed: inspection, observation, inquiry, confirmation, recalculation, reperformance and analytical procedures.
- agreed-upon procedures: An engagement where the practitioner performs procedures the parties have specified and reports the findings, expressing no opinion.
- assessed risk: The auditor's judgment about the risk of material misstatement at the assertion level, combining inherent and control risk.
- inherent risk: The susceptibility of an assertion to material misstatement before any control is considered.