Accounting Audit Testing Procedures

D.

A procedure used during accounting audits to check for errors in balance sheets and other financial documentation.

A substantive test might involve checking a random sample of transactions for errors, comparing account balances to find discrepancies, or analysis and review of procedures used to execute and record transactions.

Substantive testing is the stage of an audit when the auditor gathers evidence as to the extent of misstatements in client's accounting records or other information.

This evidence is referred to as substantive evidence and is an important factor in determining the auditor's opinion on the financial statements as a whole.

The audit procedures used to gather this evidence are referred to as substantive procedures, or substantive tests.

Substantive procedures (or substantive tests) are those activities performed by the auditor during the substantive testing stage of the audit that gather evidence as to the completeness, validity and/or accuracy of account balances and underlying classes of transactions.

Account balances and underlying classes of transaction must not contain any material misstatements.

They must be materially complete, valid and accurate.

Auditors gather evidence about these assertions by undertaking substantive procedures, which may include: Physically examining inventory on balance date as evidence that inventory shown in the accounting records actually exists (validity assertion); Arranging for suppliers to confirm in writing the details of the amount owing at balance date as evidence that accounts payable is complete (completeness assertion); and Making inquiries of management about the collectability of customers' accounts as evidence that trade debtors is accurate as to its valuation.

Evidence that an account balance or class of transaction is not complete, valid or accurate is evidence of a substantive misstatement.

The following answers are incorrect: Compliance Testing - Compliance testing is basically an audit of a system carried out against a known criterion.

Sanity testing - Testing to determine if a new software version is performing well enough to accept it for a major testing effort.

If application is crashing for initial use, then system is not stable enough for further testing and build or application is assigned to fix.

Recovery testing " Testing how well a system recovers from crashes, hardware failures, or other catastrophic problems.

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The testing procedure used by an auditor during an accounting audit to check for errors in the balance sheet and other financial documentation is known as "Substantive Testing."

Substantive testing is a type of audit procedure that is conducted by auditors to evaluate the financial statement amounts and disclosures by examining the underlying transaction data. This testing is intended to obtain audit evidence that supports the completeness, accuracy, and validity of the financial statements.

Substantive testing can be done in several ways, including analytical procedures, tests of details, and substantive analytical procedures. Analytical procedures involve the comparison of financial information with expectations developed by the auditor. Tests of details, on the other hand, involve the examination of individual transactions, account balances, or disclosures to obtain evidence to support the financial statement amounts and disclosures.

The primary objective of substantive testing is to provide reasonable assurance that the financial statements are free from material misstatement. Material misstatement is any error or omission in the financial statements that, in the auditor's professional judgment, could influence the economic decisions of users.

In contrast to substantive testing, compliance testing is used to determine whether an entity has followed specific procedures or rules that are set out in laws, regulations, or contractual agreements. Sanity testing is a type of software testing that checks whether the application under test is working as expected after modifications. Recovery testing is done to check if the system can recover from a disaster or any unexpected failure.

Therefore, the correct answer to the question is D. Substantive Testing.