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The primary objective of tests of details of transactions performed as substantive procedures is to:

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Principles

The substantive procedures (tests of details and substantive analytical procedures) should be designed during the planning phase to be responsive to the related risk assessment. The purpose of tests of details is to obtain direct audit evidence to detect material misstatements or non-compliance at the assertion level. Tests of details are mostly applied to selected individual items. The auditor should carry out tests of details as designed in the planning phase, unless the evaluation of the results of tests of controls requires her/him to reconsider the nature, timing and/or extent of the tests of details.

Instructions

When performing tests of details, the auditor may find that:

  • a selected item is not appropriate for the application of the audit procedure: in this case, the audit procedure may be performed on a replacement item. For example, a voided cheque may be selected when testing for evidence of payment authorisation. If the auditor is satisfied that the cheque had been properly voided such that it does not constitute an error, an appropriately chosen replacement is examined;
  • (s)he is unable to apply the designed audit procedures to a selected item because, for instance, documentation relating to that item has been lost. If suitable alternative audit procedures cannot be performed on that item, the auditor ordinarily considers that item to be in error. (S)he also considers whether the reasons for the inability to apply appropriate audit procedures have implications for the assessed inherent or control risk or for reliance on management representations.

Resources

Examples

Tests of details that may typically be performed include:

Financial audit Compliance audit
Computation (recalculation) Check of the arithmetical accuracy of the accounts and budget reports Check figures in the balance sheet and notes to the output of the underlying IT systems and/or supporting documentation used as the basis for the figures in the accounts Verification of correct consolidation (e.g. elimination of intra-group transactions, consolidation entries and arithmetical accuracy), where appropriate Arithmetical checks of off-balance sheet commitments Check of the consistency of the balance sheet and economic outturn account with the trial balance Check of the consistency of segment reporting with the economic outturn account Verification that the opening balance sheet of the current year corresponds to the closing balance sheet of the previous year Reconciliation between the budgetary outturn and the economic outturn Reperformance of calculations regarding claims, grants, etc. Arithmetic checks of amounts, e.g. on an invoice Reconciliation of the cost claim with underlying accounting records
Analysis (excl. analytical review) Analyses and reconciliations of accounts and/or balances Analysis of significant or unusual movements in individual accounts Analysis of reconciliations performed by the entity, e.g. bank reconciliations Analysis of budgetary execution Analysis of findings of work by internal and other auditors Analysis of legal basis, legal and budgetary commitments, eligibility, tendering procedures
Inspection and observation Examination of any modifications to the accounting rules Tests of individual items of commitments, payments and of certain balance sheet items Check that selected transactions have been correctly entered in the accounts Examining material journal entries and other adjustments made while the financial statements were being prepared Verification of execution of payments - that selected transactions have been correctly entered in the accounts and the corresponding payments have been made to the designated beneficiary, for the correct amount and according to the procedure laid down in the regulations Follow-up of reports by IAS concerning the reliability of the accounts Examination of reports drawn up regarding outstanding commitments Inspection of the correct recording and valuation of pre-financing and invoices/cost statements not paid at year-end and related guarantees received Check of cut-off operations (especially accrued charges) Inspection of physical assets Examination of
  • contracts
  • claims
  • ex-ante and ex-post control reports
  • audit reports (internal and external)
  • monitoring reports
Examination of supporting documents, e.g. invoices, public procurement documents, cost-benefit analysis, records by animals and manure, orthophotos, records of beneficiaries and land parcels On-the-spot checks Verification of payments - that selected payments have been made to the designated beneficiary, for the correct amount and according to the procedure laid down in the regulations.
Enquiry and confirmation Enquiry of auditee management and staff Confirmation of bank balances Confirmation of receivables Confirmation with third parties (e.g. legal counsel for outstanding court cases that may need to be disclosed as contingencies) Enquiry of auditee management and staff Confirmation of bank balances Confirmation of receivables

Impact of Brexit

Brexit should not affect the way we do direct testing of transactions for

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, however it may be a factor in deciding whether or not to test transactions indirectly by using the

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, including by reperforming audit or control procedures carried out by others. [/toc-this] 

What is the purpose of test of transaction?

Definition of test of transaction It is undertaken to gather evidence so that an audit opinion can be rendered as to the fairness of financial statement presentation. Included in such a test is verifying transaction amounts and tracing transactions to accounts in the financial statements.

What is the objective of the auditor in performing tests of details?

The objective of the auditor is to address the risks of material misstatement through appropriate overall audit responses and audit procedures.

What are substantive tests of transactions?

Substantive testing is known as the phase of an audit where the auditor gathers samples to identify any material misstatements in the client's accounting records or other information. This proof is required to support the judgment that a company's financial records are complete, relevant, and accurate.

Why are substantive procedures performed?

Substantive procedures are intended to create evidence that an auditor assembles to support the assertion that there are no material misstatements in regard to the completeness, validity, and accuracy of the financial records of an entity.

primary objective tests details transactions performed substantive procedures

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