What are Substantive Procedures?
Substantive procedures are performed by an auditor to detect whether there are any material misstatements in accounting transactions. Substantive procedures include the following general categories of activity:
Testing classes of transactions, account balances, and disclosures
Agreeing the financial statements and accompanying notes to the underlying accounting records
Examining material journal entries and other adjustments made during the preparation of the financial statements
Examining documentation indicating that a procedure was performed
Re performing a procedure to ensure that the procedure functions as planned
Inquiring or observing regarding a transaction
Examples of Substantive Procedures
Examples of substantive procedures are:
Bank confirmation
Accounts receivable confirmation
Inquire of management regarding the collectible of customer accounts
Match customer orders to invoices billed
Match collected funds to invoices billed
Observe a physical inventory count
Confirm inventories not on-site
Match purchasing records to inventory on hand or sold
Confirm the calculations on an inventory valuation report
Observe fixed assets
Match purchase orders and supplier invoices to fixed asset records
Confirm accounts payable
Examine accounts payable supporting documents