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Compliance and Subtantive procedure of Audit.

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

12 May 2009

Please explain Compliance and Substantive procedure of Audit in detial.

I am waiting for your valuable reply.

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2 Replies

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

Substantive procedures are intended to get confirmation as to the entirety, accurateness and soundness of the data fashioned by accounting system. They are of two categories; analysis of particulars of transactions and balances and study of noteworthy ratios and trends together with the consequential inquiry of unusual fluctuation and items. When internal control system is weak or operational deviation are wide there is a need to use substantive procedures in details. The auditor can test the transaction. He can examine invoice, the price and quantity, discount and period of accounting. He can see the details recorded in the books of depreciation expense, rent income, interest expenses, labor cost and fixed overhead cost ratio. The trend percentage may be calculated for many years. The unusual items may be checked. The sale of large part of undertaking may be there. The auditor is bale to form an opinion about the business activities through the substantive test. In case of large data sampling may be made to test the data. The purpose is to determine the completeness, accuracy and validity of it. Some evidences are required for substantive procedure. The items appearing in financial statements are under accepted accounting polices. There is full disclosure of information as per statutory requirements

(Guest)

Compliance Procedures means the tests designed to obtain reasonable assurance that, the Internal Controls are properly Designed, and Operating effectively throughout the period.

Ø Substantive Procedures are designed to obtain evidence as to the completeness, accuracy* and validity* of the data produced by the Accounting System. These are of two types: -

(a) Tests of details of Transactions (i.e., by vouching) and Balances (i.e., by Verification);

(b) Analysis of significant Ratios and trends (i.e., Analytical Review Procedures) including the resulting enquiry of unusual fluctuations and items.