[toc-this] Show PrinciplesThe level of assurance to be obtained from substantive procedures depends both on the risk assessment and on the level of reliance on internal controls. However, irrespective of the assessed risk and level of reliance on internal controls, the auditor should design and perform substantive procedures for each material item. This is because risk assessment is judgemental and the auditor may not have identified all risks, and there are [link title="inherent%20limitations%20to%20internal%20controls" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FInternal-control.aspx%23Inherent-limitations-of-internal-controls" /] . When the auditor determines that an assessed risk at the[a-glossary term="audit%20assertions"]assertions[/a-glossary] level is a significant risk, (s)he should perform substantive procedures specifically responsive to that risk. When the approach to a significant risk consists only of substantive procedures, these should include tests of detail.Nature of substantive proceduresThere are two categories of substantive procedures:
Depending on the audit evidence to be obtained, the auditor may decide to use a combination of tests of details and analytical procedures. Timing of substantive proceduresSubstantive procedures may be performed either at an interim date or at period end. When substantive procedures are performed at an interim date, the auditor should perform appropriate substantive procedures, combined with tests of controls unless the auditor deems it unnecessary, in order to cover the remaining period and reduce the risk that deviations at period end are not detected. If deviations are detected at an interim date, the auditor should modify the risk assessment and consequently the nature, timing and extent of substantive procedures covering the remaining period. Extent of substantive proceduresThe extent of substantive procedures refers to the choice of the nature and size of the sample in order to address all the significant risks in all the relevant audit assertions. The extent of substantive testing is determined when building the audit approach. Depending on the materiality level and the [link title="combined%20assessment" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FAssurance-model.aspx" /] of inherent risk and control risk, the extent of substantive procedures will be either minimum, standard or focused (with reliance based only broadly on substantive tests). In cases where the auditor has decided not to rely on internal controls, when performing substantive procedures (s)he cannot assume that the controls relating to the item are operating effectively or that the data are reliable. Unreliable or untested internal controls should require the auditor to check the reliability of the data processed and adjust the extent of substantive testing accordingly.InstructionsMain areas for which substantive audit procedures may be undertaken when testing for [link title="compliance%20with%20applicable%20laws%20and%20regulations" link="%2Faware%2FCA%2FPages%2FConcepts%2FObjectives-of-compliance-audit.aspx" /] :[toggles] [toggle title="Central%20level%20(e.g.%20Commission)"]Legal Base For any "significant Union action", the existence of the required legal base (e.g. the TFEU; Financial Regulation; Interinstitutional Agreement; Decision; Regulation; Directive). Selection Procedure – direct expenditure (where applicable)
Selection Procedure – grants (where applicable) Call for proposals, eligibility criteria, evaluation committee recommendation and authorising officer decision. Financing decision, budgetary and legal commitment
Payment authorisation
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[/toggle] [/toggles] [/toc-this] What is nature in audit?The nature of an audit procedure refers to its purpose (that is, test of controls or substantive procedure) and its type (that is, inspection, observation, inquiry, confirmation, recalculation, reperformance, or analytical procedure).
Why is timing of an audit important?Timing of Tests of Controls is an accounting or auditing practice that enables an auditor to embark on auditing procedure to test the standard of a control used by a client entity to avert financial misstatements.
What does the timing of substantive procedures refer to?Timing: This refers to the how timing can affect the acceptable level of risk. If the level of risk detection is low, the auditor typically performs procedures near or at the balance sheet date. If the level of risk detection is high, the auditor performs procedures near or at the end of the year.
What is the nature of audit evidence?Real evidence includes things actually examined by the auditor, while testimonial evidence is obtained through oral or written statements from other people. Indirect evidence encompasses documents, records, and events that the auditor uses in forming an opinion on financial statements.
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