Economic analysts and auditors analyze the accuracy and validity of a company’s financial statements using audit testing. The audit test tool collates sufficient materials for performance analysis. However, a negative response from the analysis means a misstatement in the organization’s financial statement (Learning Zone, 2013). Factors that influence financial error include inaccurate analysis, system error, and the auditor’s inefficiency. However, the auditor can eliminate the anomaly by changing the system error and re-validating the audit test. Thus, the SOFP generates additional evidence for the audit test. Audit test can be classified into the inquiry group, inspection, observation, and recalculation group. The inquiry group documents the company’s pay channels and weak links (Learning Zone, 2013). The inspection group tests payment references made by the accountant. Consequently, the observation group documents operational figures and payments. The re-performance or recalculation group collects additional data from the audit test.
The analytical performance of the organization based on data collection is called the substantive test. The features of the substantive test include Analytical procedures, Test of controls, and Test of details (Mills, 2014). As a result, the organization’s value can be computed using receivables, income, and payment figures. The components of the Test of details include observation, tracing, inspection, confirmation, and recalculation. The auditor collects operational reports for payments and liabilities. Consequently, the operational results are analyzed and tested to ensure accuracy. Thus, substantive test combines four analytical techniques to produce a valid financial statement. The analytical techniques include inquiry, inspection, observation and recalculation. The substantive test results show the wellness of the company’s financial statement. The auditor’s recommendations are based on the audit procedures, sample data, variables for analysis, and time.
Definition of terms
- PADO: Tests for Presentation and Disclosure
- BRAO: Test of the Details of Balances
- TRAO: Test of Controls
- GAAS: Generally Accepted Auditing Standard
- PCAOB: Public Company Accounting Oversight Board
GAAS and PCAOB standards
The Securities and Exchange Commission regulates audit reporting for the dealers, auditors, and brokers. The GAAS enables audit quality and evaluation objectives. However, auditing procedures facilitates auditors’ performance under the GAAS. The GAAS comprises six audit sections that regulate a firm’s financial statement. As a result, auditors must comply with the regulations of the GAAS to ensure quality interpretation of the financial statement. The GAAS standards include audit engagement, requirement, interpretation, publication, and appendixes (Learning Zone, 2013). The PCAOB regulates the interpretation of a firm’s financial statements. The categories of the PCAOB include integration of audits, multiple analysis, use of service, and benchmarking controls. Consequently, auditors must interpret the Test of controls using specific guidelines from the GAAS. The integration unit comprises nine audit sections and thirty three subsections.
Substantive audit plan
A substantive audit plan to test the assertion of cash must comply with audit procedures and standards. As a result, the financial statement for receivables and cash payment must be accurate. The substantive plan for the assertion of cash includes existence, occurrence, completeness, rights and obligations, measurement, valuation, and disclosure (Mills, 2014). Auditors must comply with the design to ensure quality interpretation of the firm’s financial statements. Account existence monitors the firm receivables and balance sheet while account occurrence documents the annual financial turnover. The valuation report documents the firm’s sales record and the balance statement. However, the complete financial analysis can be presented in the disclosure reports.
References
Learning Zone: Analytical Procedures: A Powerful Tool for Auditors. (2013). Web.
Mills, K. (2014). The basics of internal auditing. Web.