Resources · Professional guides
Substantive testing checklist
Assertions — keep them on the working paper
| Assertion (simplified) | Question you are answering |
|---|---|
| Existence / occurrence | Did this balance or transaction really happen? |
| Completeness | Is anything missing that should be recorded? |
| Accuracy / valuation | Are amounts correct and valued properly? |
| Rights & obligations | Does the entity own it / owe it? |
| Cut-off | Is it in the right period? |
| Presentation | Is classification and disclosure fair? |
High-yield substantive ideas by area
- Bank: reconcile to statement; test reconciling items to clearing.
- Receivables: after-date cash, confirmations where used, allowance rationale.
- Payables: supplier statements, after-date invoices for completeness.
- Inventory: count attendance results, NRV tests on aged lines.
- PPE: additions to invoice, disposals, depreciation recalculation.
- Revenue: sequence tests, cut-off around period end, unusual journals.
Working paper discipline
- Source, date, preparer, reviewer initials.
- Sample method stated (not only “selected items”).
- Exceptions listed with conclusion (adjusted / accepted / escalated).
Worked example: substantive testing on trade receivables
Say year-end trade receivables total Rs. 8,400,000 across 140 customer accounts. A common approach: stratify by value, test 100% of balances above a set threshold (say Rs. 200,000, covering perhaps 60% of the balance by value in a typical customer mix), and sample the remainder using monetary unit sampling.
- Existence: send confirmations to the high-value tier; for non-responses, fall back to after-date cash receipts as an alternative procedure — don't just drop the item from testing.
- Valuation: for the allowance for receivables, recalculate the aged analysis and challenge management's assumptions on any account over 90 days that still shows no allowance.
- Cut-off: trace the last five sales invoices before year-end and the first five after — check they're recorded in the correct period against dispatch/delivery evidence, not just invoice date.
The write-up matters as much as the test: state the population, the sampling method, the threshold used, and — critically — what you did about exceptions. "No exceptions noted" only means something if the reviewer can see exactly what was tested.
Where this sits in the ACCA syllabus
Substantive procedures are central to Audit and Assurance (AA), and the same assertions framework carries into Advanced Audit and Assurance (AAA), where the emphasis shifts from "can you list the tests" to "can you justify why this test responds to this specific assessed risk" — examiners consistently penalise generic, boilerplate procedures that aren't tied to the scenario.
Common pitfalls
- Testing the wrong assertion — a confirmation letter primarily addresses existence, not valuation; pairing it with the wrong risk in your working paper is a common exam and practice error.
- "Selected items" as a sampling method — reviewers (and examiners) want to see the actual basis: haphazard, systematic interval, monetary unit, or judgmental with stated criteria.
- Skipping the "so what" — an exception found but not followed through to a conclusion (adjusted, accepted as immaterial, or escalated) leaves the file incomplete.
- Over-relying on one procedure — for higher-risk balances, corroborate a confirmation with a second, independent procedure rather than treating one clean response as sufficient evidence on its own.