{"id":1186,"date":"2021-07-20T22:13:46","date_gmt":"2021-07-20T22:13:46","guid":{"rendered":"https:\/\/alminawi.com\/?p=593"},"modified":"2025-09-27T12:58:25","modified_gmt":"2025-09-27T12:58:25","slug":"internal-audit-of-operations-episode-07-run-substantive-testing-procedures","status":"publish","type":"post","link":"https:\/\/e.americanpro.org\/?p=1186","title":{"rendered":"Internal Audit of Operations: Episode 07, Run Substantive Testing Procedures"},"content":{"rendered":"<p data-start=\"84\" data-end=\"522\"><strong data-start=\"84\" data-end=\"107\">Substantive testing<\/strong> is a key phase in the internal audit process where auditors perform detailed procedures to detect <strong data-start=\"206\" data-end=\"232\" data-is-only-node=\"\">material misstatements<\/strong> in financial accounts. These procedures aim to obtain direct evidence regarding the accuracy, completeness, and validity of transactions. Substantive testing is used in addition to control testing and becomes especially important when internal controls are found to be weak or ineffective.<\/p>\n<ul>\n<li data-start=\"524\" data-end=\"941\">\n<p data-start=\"526\" data-end=\"568\">Common <strong data-start=\"533\" data-end=\"559\">substantive procedures<\/strong> include:<\/p>\n<ul data-start=\"571\" data-end=\"941\">\n<li data-start=\"571\" data-end=\"641\">\n<p data-start=\"573\" data-end=\"641\"><strong data-start=\"573\" data-end=\"598\">Analytical procedures<\/strong> \u2013 Comparing actual results to expectations<\/p>\n<\/li>\n<li data-start=\"644\" data-end=\"706\">\n<p data-start=\"646\" data-end=\"706\"><strong data-start=\"646\" data-end=\"660\">Inspection<\/strong> \u2013 Reviewing invoices, contracts, and receipts<\/p>\n<\/li>\n<li data-start=\"709\" data-end=\"781\">\n<p data-start=\"711\" data-end=\"781\"><strong data-start=\"711\" data-end=\"727\">Confirmation<\/strong> \u2013 Requesting verification directly from third parties<\/p>\n<\/li>\n<li data-start=\"784\" data-end=\"855\">\n<p data-start=\"786\" data-end=\"855\"><strong data-start=\"786\" data-end=\"803\">Recalculation<\/strong> \u2013 Recomputing figures to test mathematical accuracy<\/p>\n<\/li>\n<li data-start=\"858\" data-end=\"941\">\n<p data-start=\"860\" data-end=\"941\"><strong data-start=\"860\" data-end=\"887\">Observation and inquiry<\/strong> \u2013 Asking relevant staff and observing physical assets<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<li data-start=\"943\" data-end=\"1279\">\n<p data-start=\"945\" data-end=\"1076\">In <strong data-start=\"948\" data-end=\"978\">accounts receivable audits<\/strong>, auditors often use <strong data-start=\"999\" data-end=\"1023\">confirmation letters<\/strong> to verify outstanding balances. There are two types:<\/p>\n<ul data-start=\"1079\" data-end=\"1279\">\n<li data-start=\"1079\" data-end=\"1191\">\n<p data-start=\"1081\" data-end=\"1191\"><strong data-start=\"1081\" data-end=\"1106\">Positive confirmation<\/strong> \u2013 The customer must respond, whether they agree or disagree with the stated balance.<\/p>\n<\/li>\n<li data-start=\"1194\" data-end=\"1279\">\n<p data-start=\"1196\" data-end=\"1279\"><strong data-start=\"1196\" data-end=\"1221\">Negative confirmation<\/strong> \u2013 The customer only responds if the balance is incorrect.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<li data-start=\"1281\" data-end=\"1841\">\n<p data-start=\"1283\" data-end=\"1841\"><em data-start=\"1283\" data-end=\"1302\">Practical Example<\/em>: An internal auditor at a wholesale electronics company runs <strong data-start=\"1364\" data-end=\"1385\" data-is-only-node=\"\">substantive tests<\/strong> on revenue and receivables. After identifying inconsistencies in aging reports, the auditor sends <strong data-start=\"1484\" data-end=\"1510\">positive confirmations<\/strong> to a sample of 30 customers with balances over $20,000. Five customers reply with differences due to unapplied discounts and shipping errors. In addition, the auditor <strong data-start=\"1678\" data-end=\"1703\">recalculates invoices<\/strong> and compares them to shipping records, uncovering that 8% of sales were recorded before delivery, violating the <strong data-start=\"1816\" data-end=\"1840\">occurrence assertion<\/strong>.<\/p>\n<\/li>\n<li data-start=\"1843\" data-end=\"2131\" data-is-last-node=\"\">\n<p data-start=\"1845\" data-end=\"2131\" data-is-last-node=\"\">The audit findings prompt management to review revenue recognition timing and enforce tighter reconciliations. Substantive procedures thus provide <strong data-start=\"1992\" data-end=\"2017\">strong audit evidence<\/strong> and help internal auditors identify errors, strengthen reporting reliability, and recommend process improvements.<\/p>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Substantive testing is a key phase in the internal audit process where auditors perform detailed procedures to detect material misstatements in financial accounts. These procedures aim to obtain direct evidence regarding the accuracy, completeness, and validity of transactions. Substantive testing is used in addition to control testing and becomes especially important when internal controls are [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":811,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[17],"tags":[],"class_list":["post-1186","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-internal-audit"],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/e.americanpro.org\/wp-content\/uploads\/2025\/06\/Galaxy-1.gif","_links":{"self":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts\/1186","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1186"}],"version-history":[{"count":1,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts\/1186\/revisions"}],"predecessor-version":[{"id":2131,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts\/1186\/revisions\/2131"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/media\/811"}],"wp:attachment":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1186"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1186"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1186"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}