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Compliance and substantive Procedures of Audit

CA-ASPIRANT (CA-STUDENT ) (650 Points)

12 May 2009

Please delineate Compliance and Substantive procedure of Audit. in detail.

Thanks in advance.

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CA Swapnil (job ) (1205 Points)
Replied 12 May 2009

Originally posted by :Amritesh
"	Please delineate Compliance and Substantive procedure of Audit. in detail. Thanks in advance.	"

Compliance Procedures are tests designed to obtain reasonable assurance that those internal controls on which audit reliance is to be placed are in effect

·The auditor needs to ensure that internal control exist and that the internal control is operating effectively and being operating continuously throughout the period under audit to ensure that they can be relied upon.

·In summary, by doing Compliance Tests, the auditor can then able to ascertain the existence, effectiveness and continuity of the internal control system.Compliance Procedures are tests designed to obtain reasonable assurance that those internal controls on which audit reliance is to be placed are in effect

·In summary, by doing Compliance Tests, the auditor can then able to ascertain the existence, effectiveness and continuity of the internal control system.

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CA Swapnil (job ) (1205 Points)
Replied 12 May 2009

Substantive Procedures are tests designed to obtain evidence to ensure the completeness, accuracy and validity of the data produced by the accounting system.

Classified into two (2) types:

(a) Tests of details of transaction and balances and

· (b) Analysis of significant ratios and trends which also include the investigation of any unusual fluctuation and items whether in the Income Statement or Balance Sheet

Purpose of Substantive Procedures:

Enable an auditor to be assured of the following:

(a) Existence

· That an asset/liability exists at a given date

(b) Rights & Obligations:

· That an asset is a right of the entity and a liability is an obligation of the entity at a given date

© Occurrence

· That a transaction or event took place which pertains to the entity during the relevant period

(d) Completeness

· That there are no unrecorded assets, liabilities or transactions

(e) Valuation

· That an asset/liability is recorded at an appropriate carrying value

(f) Measurement

· That a transaction is recorded in the proper amount and revenue or expense is allocated to the proper period

(g) Presentation

· An item is disclosed,classified and described in accordance with recognized accounting, policies and practices and relevant statutory requirements if any.

Salient Points:

1. By using Substantive procedures, the auditor is trying to obtain evidence as to the existence, completeness, measurement, rights, obligations occurrence, valuation and presentation and disclosure of transactions and balances.

2. Therefore, the extent and nature of substantive procedures to be performed will vary with respect to each of the above assertions. Obtaining evidence relevant to one of the above assertions will not compensate for failure to do so with respect to another matter concerning the same item e.g. existence of inventory and its valuation.

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CA-ASPIRANT (CA-STUDENT ) (650 Points)
Replied 12 May 2009

My understanding after reading your explaination is :

Compliance procedure means test designed by the auditor to know how much we may rely upon the internal control system of the organisation.

Am i right or not?

If right, please let me know these tests.

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CA Swapnil (job ) (1205 Points)
Replied 12 May 2009

these procedures include tests requiring inspection of documents supporting transactions to gain evidence that controls have been operating properly.for eg the auditor may see that all documents are properly authorised.

CA Swapnil (job ) (1205 Points)
Replied 12 May 2009

Originally posted by :swapnil shah
"	these procedures include tests requiring inspection of documents supporting transactions to gain evidence that controls have been operating properly.for eg the auditor may see that all documents are properly authorised.	"

in general the auditor has to assure himself that all internal controls on which he has placed reliance are in effect.......