What do you think the auditors meant by the term "substantive audit"?
Was the substantive approach appropriately applied in EM's audit of Maxall?
1. The term "substantive audit" refers to a method used by auditors to gather evidence and assess the accuracy and completeness of financial statements. It involves testing transactions, account balances, and disclosures to determine if they are materially correct and in accordance with accounting principles.
2. To evaluate whether the substantive approach was appropriately applied in EM's audit of Maxall, we would need more information about the specific audit procedures and findings. However, generally speaking, a substantive audit approach is typically used when there is a higher risk of material misstatements in the financial statements. It involves performing substantive procedures such as detailed testing, analytical procedures, and reviewing supporting documentation. If the audit team diligently performed these procedures and obtained sufficient appropriate evidence, then the substantive approach was likely applied appropriately. However, if there were indications of potential issues or deficiencies in the application of substantive audit procedures, it would be important to further investigate and assess the effectiveness of EM's audit of Maxall.
The term "substantive audit" refers to a thorough examination of financial statements and supporting documents to obtain evidence about the accuracy and completeness of the information presented. It involves verifying the existence, occurrence, and valuation of assets and liabilities, as well as assessing the reasonableness of financial statement balances.
To determine if the substantive approach was appropriately applied in EM's audit of Maxall, you need to review the audit work papers and reports. These documents contain detailed information about the audit procedures performed and the evidence obtained. Here's how you can assess the appropriateness of the substantive approach:
1. Review the audit plan: Look for evidence that the audit plan included substantive procedures specific to Maxall's financial statement assertions. This could include procedures like inventory physical count, reconciling bank statements, or reviewing contracts.
2. Examine the audit work papers: Analyze the audit documentation to see if the procedures stated in the plan were actually performed. Pay attention to the nature, timing, and extent of the procedures. If the auditors followed the substantive approach, there should be evidence of detailed testing and analysis.
3. Evaluate the evidence obtained: Assess whether the auditors obtained sufficient and appropriate evidence to support their conclusions. This evidence should support the assertions made in the financial statements, such as accuracy, completeness, and valuation.
4. Consider the materiality of issues: Determine if any material discrepancies or errors were identified and how they were addressed. The auditors should have focused their substantive procedures on areas that pose significant risks of material misstatement.
By examining the audit work papers and reports, you can assess whether the substantive approach was appropriately applied in EM's audit of Maxall. Remember, the final determination should be based on the evidence and professional judgment applied by the auditors.