The Nature of Substantive Procedures Refers to the Type and Effectiveness

Question

Examlex · Accepted Answer

The Answer is The three types of substantive procedures are:

\bullet

Analytical procedures consist of the study and comparison of relationships among dataThese procedures have proven quite effective in detecting large misstatements in the financial reports and tend to be the least costly of substantive procedures.

\bullet

Tests of details of transactions primarily involve tracing and vouching the individual debit and credit entries in the account.When these procedures involve highly appropriate evidence such as externally generated documents, they can be quite effective.They tend to be more costly than analytical procedures, but less costly than tests of details of balances.

\bullet

Tests of details of balances verify the ending account balances directly, without any explicit reference to the individual debit and credit entries.These procedures tend to be the most effective and costly since they often involve the most competent forms of evidence such as auditor observation and confirmation from outsiders.

The Nature of Substantive Procedures Refers to the Type and Effectiveness

Definitions: