Are You Taking Credit for All Your Substantive Auditing Procedures? | AccountingWEB

Are You Taking Credit for All Your Substantive Auditing Procedures?

The risk assessment standards tell us that all risk assessment procedures produce substantive evidence.  If this is true, and it is, planning activities, brainstorming meetings, inquiries of client management and employees, documenting internal control and the evaluation of risks of material misstatements all produce substantive evidence.

So how much substantive evidence is necessary for an audit engagement?  We know the answer depends on the risks at the financial statement and assertion levels.  Being the conservative souls that we are, however, we usually collect more than enough substantive evidence to mitigate engagement risks!  We can achieve quality this way but we may not be able to bill for all our time charges!

So, to our question.  Are you taking credit in your audit strategy and audit plan for all that you do on audits?  If all risk assessment procedures produce substantive evidence, and we require a certain amount of substantive evidence at a given risk level, are we considering reductions in our detailed tests of balances as a result of the addtional evidence from risk asssessment procedures?  Raising the lower limit for individually significant items, eliminating a few accounts reveivable confirmations, only reviewing bank statements for reasonableness, or reducing the number of days used in cut-off tests are just a few examples of reductions in detailed tests of balances.

One of the most pervasive analytical procedures we routinely perform is reading the general ledger.  Whether it's done manually or with data extraction software, this analytical procedure produces HUGE amounts of substantive evidence.  Looking for unusual amounts or postings, transactions or journal entries greater that the lower limit for individually significant items, checks or disbursements to be used in support tests and other unusual matters enables the auditor to identify risks of misstatements and to provide any necessary audit responses, including proposing journal entries to correct errors.  The problem is that we don't always consider the effects of what we didn't find on our audit strategy and audit plan!

Activity in an entity's general ledger that is accounted for correctly is substantive evidence that contributes evidence for he auditor's opinion about the fairness of presentation of the entity's financial statements.  Many auditors customarily perform this procedure but fail to consider its effects on their audit strategy and audit plan.  The substantive evidence obtained from this and other risk assessment procedure may enable the auditor to reduce the assessed level of risk of material misstatement to less than high.  When the level of risk is less than high, the extent of evidence required from detailed tests of balances procedures is also less.  Taking credit for the substantive evidence provided from our risk assessment procedures can reduce our detailed tests of balances and our engagement time charges!

I've attached an illustration comparing tests of balances procedures at various levels of risk for your downloading and use.  If you have questions about this illustration, or any of the information I present in this blog, please go to our website,, and send me a contact question or comment.


This blog

by Larry Perry, CPA, CPA Firm Support Services, LLC - Larry has over 40 years experience as a CPA practitioner, author of accounting and auditing manuals, author and presenter of live staff training seminars and author of webcast and self-study CPE programs.  He is co-founder of CPA Firm Support Services, LLC (, an organization providing resources, training and consulting to smaller CPA firms.  Larry writes a weekly blog on focusing on small audits, reviews and compilations.  He is currently developing documentation manuals and handbooks for small audits, reviews and compilations and related electronic practice aids.

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.


Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.


Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.


Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".


William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.


Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (, a software development firm of high-volume, high-productivity accounting and payroll technology.


Eva Rosenberg, MBA, EA, is the publisher of, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.


Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website:
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.


The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.


FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.


Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.


Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of a website devoted to training for governmental auditors.


AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish share their ideas, insights, and perspectives from across the pond.