International Education

with an
Australian Experience
AUDIT AND ASSURANCE
MAC005
Bernadette Or
Week 11 – Substantive testing and Income Statement Accounts
Chapter 11
Substantive testing/
Substantive procedures
• Designed to obtain direct evidence
• Linked to appropriate assertions
• Procedures include:
• Inspections
• Observations
• Enquiry
• Confirmation
• Recalculation
• re-performance
• Analytical reviews
Substantive testing/Substantive procedures
• What to test

• How much to test

• How much details

Substantive testing/Substantive procedures
What to test

• Key Items testing

• Representative sampling

• Other
Substantive testing/Substantive procedures
• What to test

• How much to test

• How to test
Substantive testing/Substantive procedures Income A/cs
Income Statement Accounts:

Category Subcategory Examples

Income Sales of goods Sales less discounts and

or services returns
Investment From Bank accounts,
Income shares, bonds and
deposits
Miscellaneous Profit and Loss on disposal
Income of Fixed Assets
Substantive testing/Substantive procedures Income A/cs
Income Statement Accounts:

Category Subcategory Examples

Expenses Salary and Wages Staff, directors
Oncosts Payroll Tax, Superannuation, Workers
Compensation, Leave Entitlement
Cost of Sales Raw Materials
Rental Expenses Office, Warehouse, stores, etc
Travel & Flights, hotels, taxi, public transport
Accommodation etc
General Office Stationery, printing, catering for staff
Expenses etc
Depreciation & Equipment, Leasehold Improvement,
Amortisation Revaluation
Designing Substantive procedures-
Income Statements
• Examples for:
• Income – Covered in class pages 411 -414

• Costs – Four ways to cheat with expenses

page 420
Bonus homework
Designing Substantive testing for Income
and Expenditure Account -
 International Education
with an
Australian Experience
Designing Substantive Testing On Balance
Sheet Accounts – chapter 10
Substantive testing/Substantive procedures
Balance Sheet Accounts:
Category Subcategory Examples
Assets Cash on Hand Bank balances, petty cash,
short term investments
Fixed Assets Property, Plant and
(Over 12 months) Equipment (PPE)
Intangible Assets
Accumulated Depreciation
Current Assets Trade Debtors
(less than 12 months Prepaid expenses
Liability Current Liabilities Trade Creditors
(under 12 months Annual Leave provision
Non Current Liabilities Long Service Leave
Provisions
Equity Shares, Accumulated
Surplus
Designing Substantive procedures-
B/S accounts
• Examples for
Cash Pg362 to 365 – Covered in Class
Trade Receivable Pg 366 to 372
Inventory Pg 372 to 378
Fixed Assets Pg 379 to 381 –