Substantive Testing

Substantive testing is the stage of an audit when the auditor gathers evidence as to the extent of mis-statements in a client's accounting records or other information. This evidence is referred to as substantive evidence and is an important factor in determining the auditor's opinion on the financial statements as a whole.

The audit procedures used to gather this evidence are referred to as substantive procedures, or substantive tests.

Substantive Tests

Substantive procedures (or substantive tests) are those activities performed by the auditor during the substantive testing stage of the audit that gather evidence as to the completeness, validity and/or accuracy of account balances and underlying classes of transactions.

Account balances and underlying classes of transaction must not contain any material misstatements. They must be materially complete, valid and accurate. Auditors gather evidence about these assertions by undertaking substantive procedures, which may include:

  • physically examining inventory on balance date as evidence that inventory shown in the accounting records actually exists (validity assertion);
  • arranging for suppliers to confirm in writing the details of the amount owing at balance date as evidence that accounts payable is complete (completeness assertion); and
  • making inquires of management about the collectibility of customers' accounts as evidence that trade debtors is accurate as to its valuation.

Evidence that an account balance or class of transaction is not complete, valid or accurate is evidence of a substantive misstatement.

Types of Substantive Procedures

There are two categories of substantive procedures:

  • analytical procedures; and
  • tests of detail.

Analytical procedures generally provide less reliable evidence than the tests of detail. Analytical procedures are applied in several different audit stages, whereas tests of detail are only applied in the substantive testing stage.