Compliance and Substantive Procedures

Compliance Procedures are tests designed to obtain reasonable assurance that those internal controls on which audit reliance is to be placed are in effect · The auditor needs to ensure that internal control exist and that the internal control is operating effectively and being operating continuously throughout the period under audit to ensure that they can be relied upon. · In summary, by doing Compliance Tests, the auditor can then able to ascertain the existence, effectiveness and continuity of the internal control system. Compliance P rocedures are tests designed to obtain reasonable assurance that those internal controls on which audit reliance is to  be placed are in effect ·

Substantive Procedures are tests designed to obtain eviden ce to ensure the completeness, accuracy and validity of the data produced by the accounting system. Classified into two (2) types: (a) Tests of details of transaction and balances and · (b) Analysis of significant ratios and trends which also include the investiga tion of any unusual fluctuation and items whether in the Income Statement or Balance Sheet.

Purpose of Substantive Procedures: Enable an auditor to be assured of the following: (a) Existence · That an asset/liability exists at a given date (b) Rights & Obligations: · That an asset is a right of the entity and a liability is an obligation of the entity at a given date © Occurrence · That a transaction or event ev ent took place which pertains to the entity during the relevant period (d) Completeness · That there are no unreco rded assets, liabilities or transactions (e) Valuation · That an asset/liability is recorded at an approp riate carrying value (f) Measurement · That a transaction is recorded in the proper amount and revenue or o r expense is allocated to the proper period (g) Presentation · An item is disclosed,classified and described in accordance with recognized accounting, policies and practices and relevant statutory requirements if any.

Salient Points: 1. By using Substantive procedures, the au ditor is trying to obtain evidence as to the existence, completeness, measurement, rights, obligations occurrence, valuation and presentation and disclosure of transactions and balances. 2. Therefore, the extent and nature of substantive procedures to be performed will vary with respect to each of the above assertions. Obtaining evidence relevant to one of the above assertions will not compensate for failure to do so with respect to another matter concerning the same item e.g. existence of inventory and its valuation.