7016 Execute substantive procedures and document results

Jul-2017

OAG Guidance

The documentation for substantive procedures should include the following:

• Purpose (general information (such as the performance materiality, the desired level of evidence)
• Source (for instance, the G/L Accounts (name and balance as at the date of the audit)
• Nature, Timing, and Extent of Test
• Conclusion/Results
• Assess Need for Further Evidence

Using the ‘Substantive analytics’ procedure within the program ‘Substantive Procedures—Substantive Analytics’ and Test of Details template is recommended. The procedure and template will assist the team member through appropriate documentation of substantive procedures, including results of work performed. Note that the detailed audit work, including calculations, tickmarks, and testing results, is still documented in the workpaper.

OAG Guidance

The types of detailed tests are:

• Targeted testing
• Non-statistical sampling
• Statistical sampling
• Accept-Reject testing
• A mix of these methods

Depending on the nature of the test, the following templates help to gather the information on detailed testing:

• Targeted Testing template
• Non-statistical Sampling template
• Accept-Reject template

When using statistical sampling (MUS), teams document their work on the sample size, the selection of items, and the evaluation of the results by printing relevant screens from IDEA.

OAG Guidance

Each detailed testing templates—Targeted Testing, Non-statistical Sampling, and Accept-Reject—has a section (a step) asking to summarize the results of the detailed tests performed, to evaluate these results and to take action, if needed. The results section indicates whether exceptions occurred during testing.

The Results section of a Procedure step also requires the team to document their conclusions and whether an exception was identified in connection with performing a substantive Procedure step. An exception for a substantive Procedure step may arise when a misstatement is found when performing audit testing. The determination of whether an exception was identified in connection with performing a Procedure step is a matter of professional judgment. Engagement teams may find it helpful to discuss the nature of what will be considered an exception during the team planning/kick-off meeting.

Examples of when a misstatement found in performing audit testing would normally be identified as an exception in the Results section of a substantive Procedure step include:

• When performing accept-reject testing, we identify more errors/exceptions than we initially determined we can tolerate.
• When performing a test of details, a misstatement (regardless of whether it is below or above the de minimis SUM posting level) of the financial statements is identified.
• When performing a substantive analytic, we are unable to obtain sufficient appropriate evidence to support the FSLI amount when a variation exceeds the threshold.

Examples of when a misstatement found in performing audit testing would not normally be identified as an exception in the Results section of a Procedure step include:

• When performing accept-reject testing, we identify fewer errors/exceptions than we initially determined we can tolerate.
• When performing a substantive analytic, we obtain sufficient appropriate evidence to support the book amount when the variation exceeds the threshold.

If we identify a misstatement during substantive testing:

• Determine whether the exceptions represent a control deficiency/weakness

(a) If an exception does not have control implications, document the rationale.

(b) If the exception has control implications, then create an issue in the audit file for the Control Deficiency/Weakness (CD/W). If we identify a control exception through substantive testing, re-evaluate the planned audit approach and determine whether additional evidence is needed from substantive testing not originally planned.

Determine whether we wish to propose an audit adjustment.

OAG Guidance

Next, enter the value of the adjustment required for exceptions in the SUM, if above the de minimis SUM posting level, regardless of whether or not the adjustment was recorded by the client. If an exception exists and the team decided not to propose an adjustment, explain why, such as the adjustment is below the de minimis posting level. For additional guidance on exceptions and identified misstatements, see OAG Audit 9010.

OAG Guidance

The last item to document is our assessment of level of audit evidence obtained, and if additional audit evidence is required. We document our conclusions and further audit procedures if applicable in the Results section of the procedure. We then indicate the level of assurance obtained by selecting Yes or No to indicate if the desired level of evidence was obtained for each procedure. If the answer is No, a message will be prompted requiring documentation of compensating procedures at the bottom of the SOC. If an additional procedure is performed or another control is tested, a row should be added in the SOC sheet to document it. It should be documented in red. As a result, a trail/history of planning decisions made throughout the audit is kept in the SOC sheet. Refer to OAG Audit 4051 for further guidance related to charges to the audit strategy and plan.

Note: in the Summary of Comfort, we provide a hyperlink reference to the working paper and/or procedure step where the auditor summarizes the results of our audit procedures and conclusions, including whether the desired level of audit evidence was obtained and, if not, reference to additional procedures performed.