Substantive Testing of Accounts, Transactions, and Audit Cycles

This chapter covers substantive testing at the account and transaction level. It is where assertion-level audit work becomes concrete through direct testing of cycles, balances, and specific financial statement areas.

In This Chapter

• Substantive Testing of Revenue and Cash Receipts addresses one of the highest-risk areas in many audits.
• Substantive Testing of Purchases, Expenditures, and Payroll covers major expense-side transaction testing.
• Auditing Inventory Observation, Existence, and Costing focuses on count procedures, valuation, and costing risk.
• Auditing Fixed Assets, Depreciation, and Impairment covers long-lived asset testing and impairment indicators.
• Auditing Investments and Fair Value Measurements addresses complex valuation and classification issues.

How to Use This Chapter

• Read this chapter when you need concrete examples of substantive work by cycle or account area.
• Focus on which assertion is being tested and why the chosen procedure matches that assertion.
• Revisit it whenever an AUD miss involves substantive testing design or account-specific audit response.

In this section

• Substantive Testing of Revenue and Cash Receipts
  How auditors perform substantive testing over revenue recognition and cash receipts.
• Substantive Testing of Purchases, Expenditures, and Payroll
  How auditors test purchases, expenditures, payroll, and related liabilities.
• Auditing Inventory Observation, Existence, and Costing
  How auditors test inventory existence, observation procedures, and costing assertions.
• Auditing Fixed Assets, Depreciation, and Impairment
  How auditors audit fixed assets, depreciation, disposals, and impairment indicators.
• Auditing Investments and Fair Value Measurements
  How auditors test investments, valuation inputs, hierarchy classifications, and fair value disclosures.