Zaiitz3
offlineMember
Can someone explain these two in plain english? What are they, and when do you do substantive testing and when do you do analytical procedures? HELP!
Yvonne570
offlineMember
Analytical procedures are required for the planning phase and the final review of the audit. These procedures are more broad and really uses the financial ratios to look for irregularities in the FS.
Substantive testing is the detail testing involved during the work of the audit - which also involves sampling to gather evidence for the auditor's opinion - based upon the assertions. Analytical procedures can also compliment this phase; however, it's not required.
Zaiitz3
offlineMember
So what's done in a review is analytical procedures and, for example, sending a sample of customers confirmations are substantive testing?
Thank you, by the way!
Yvonne570
offlineMember
Confirmations are part of the substantive testing process. You can also perform analytical procedures to help with various phases of the audit. It's like financial ratio, budget to actual comparisons, reviewing minutes, etc.
Zaiitz3
offlineMember
Haha, you got this down to an art. Bet you did really well on your exam :) Thank you again Yvonne570 and fg
mla1169
offlineMember
I just think of the roots of the words. Substantive testing is to substantiate a management assertion. Lots of ways to do this, in some cases an analytical procedure can be a substantive test (like for estimates, we could use an analyis to see if the estimate is reasonable.) Can substantiate with confirmations, or other tests of details. So I would ask myself "will this test really back up an assertion?" if yes, the test is substantive.
Analytical is just analysis, a comparison. Can even be between financial and non financial information (like comparing revenue $ to the square footage of the plant), or financial and financial information (this years revenue to last years revenue). You HAVE to do analytical procedures during planning, and you CAN do. analytical procedures during the audit, and its RECOMMENDED to do analytical procedures during the final wrap up stage.
Jeff - another71.com
offlineadmin
Great explanations, btw.
hopefulcpa28
offlineMember
Looks like others have responded to your questions....but thought I shed some light on Analytical procedures done during three phases.
Like everyone mentioned, it's only required for planning and final review stage. However it can be also used as substantive procedures.
Analytical procedures:
Planning stage: To assist in planning the nature, timing and extent of other auditing procedures.It basically enhances auditor's understanding of the company. Generally use data aggregated at a high level.
Used as Substantive procedure: Not required, BUT can be used to obtain evidence about particular assertions related to account balances or classes of transactions. You can decide whether to use it or not based on: Nature of assertions, are they predictable, reliable, precision of exceptions, etc? For example, if the account isn't predictable, then there's not really a point in doing analytical procedures on those accounts.
Overall review: To assist in assessing the conclusions reached and in the evaluations of the overall f/s presentations. Are the evidence adequate? Is there an unusual or unexpected balances or relationships that weren't previously identified.
As far as subsantive procedures go:
There's two parts to it: Test of Details and analytical procedures.
Test of details are always required, no matter what...but analytical procedures aren't.
Test of Details includes things like: Footing, Inquiry, inspection, vouching, examination, tracing, confirmation, etc...
Analytical procedures: Using ratios.
Hope that helps. It really helped me to separate out both and to understand when/where they were used. It really comes in handy when answering questions, you can automatically eliminate couple choices based on key words used.
Zaiitz3
offlineMember
Thank you all so much for these AMAZING explanations, especially @hopefulcpa28. I've also been meaning to ask what exactly tests of detail were, but you answered that already! Thank you all for your help!
@chakdey, I don't know why these didn't click before either. Hopefully after these great descriptions, we'll be pro's :)
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