Tests of Controls vs Substantive Procedures: How Do You Tell Them Apart?
Many AUD questions contain two answer choices that both sound like legitimate procedures. The difference is often the objective.
Tests of controls ask whether the control worked
If management requires credit approval before a sale is processed and the auditor inspects evidence that approval occurred, the auditor is testing whether the client's control operated effectively.
Substantive procedures ask whether the number is right
If the auditor confirms a customer's receivable balance, the objective is evidence about the financial statement balance itself. That is substantive work.
Same document, different objective
An invoice might be inspected to determine whether a required approval occurred or to support the recorded transaction. The document is the same. The objective is different.
Tests of details vs analytical procedures
Substantive procedures can include tests of details and substantive analytical procedures. Do not treat “substantive procedure” as synonymous with “look at documents.”
Ask this before choosing
Is the auditor testing the client's process, or testing the financial statement amount?
Process or control points toward a test of controls. Financial statement amount or assertion points toward substantive testing.
Why reliance matters
If the auditor plans to rely on a control, evidence is needed that the control operated effectively. If controls are weak or the auditor chooses not to rely on them, more substantive work may be necessary.
Do not confuse walkthroughs
A walkthrough can help the auditor understand the process and evaluate design and implementation. That is not automatically the same as testing operating effectiveness over the relevant period.
Related Summit guides
FAQ
Is inspection always a test of controls?
No. Inspection can be used for different audit objectives.
Are confirmations substantive procedures?
They are commonly substantive tests because they provide evidence about balances or transactions.
Does an auditor always test controls?
The nature and extent of control testing depends on the audit strategy and circumstances.