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Substantive procedures (or substantive tests) are those activities performed by the auditor to detect material misstatement at the assertion level. [1]Management implicitly assert that account balances and disclosures and underlying classes of transactions do not contain any material misstatements: in other words, that they are materially complete, valid and accurate.
Analytical procedures include comparison of financial information (data in financial statement) with prior periods, budgets, forecasts, similar industries and so on. It also includes consideration of predictable relationships, such as gross profit to sales, payroll costs to employees, and financial information and non-financial information, for examples the CEO's reports and the industry news.
It serves to guide the auditor on obtaining audit evidence through the application of an appropriate mix of tests of control systems and substantive tests of transaction and balances. It requests the auditor to obtain 'sufficient' and 'appropriate' audit evidence in order to draw reasonable conclusions on which to base the audit opinion.
In the control testing stage, audit evidence is used by the auditor to consider the mix of audit test of controls and audit substantive tests. [9] In the substantive testing stage, audit evidence is defined as the information that the auditor needs to support the appropriation of financial statement assertions. [10]
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At this stage, if the auditor accept the CR that has been set at the phase I and does not want to reduce the controls risk, then the auditor may not perform test of control. If so, then the auditor perform substantive test of transactions. This test determines the amount of work to be performed i.e. substantive testing or test of details. [27]
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Performance audit refers to an independent examination of a program, function, operation or the management systems and procedures of a governmental or non-profit entity to assess whether the entity is achieving economy, efficiency and effectiveness in the employment of available resources.