What is substantive testing?
Substantive testing is the detailed testing the auditor will undertake on transactions and balances. For example, in a sales audit, the auditor will start from the initial customer order, trace the order to the sales invoice, trace the sales invoice to the customer’s ledger account, to the debtors control account, to the VAT account (where appropriate), to the sales within the financial statements and to eventual payment (where appropriate). What are tests of control? Internal controls are the procedures and policies the audit client implements within their entity. An effective control environment will contribute to effective financial reporting and prevention of fraud. An ineffective control environment will mean the auditor will have to undertake a wholly substantive approach to their audit. The auditor will test the internal controls to ensure they operate and if the auditor concludes that a sufficient internal control environment exists, then the auditor can reduce their detailed s
