## Substantive Procedures — Types and Application
### What Are Substantive Procedures?
Substantive procedures directly test whether financial statement assertions (existence, completeness, valuation, rights & obligations, presentation) are free of material misstatement. They operate at the assertion level.
### Two Types of Substantive Procedures
```
Substantive Procedures
├── (1) Tests of Details (Test of Balances / Vouching)
│ ├── Verification of Assets
│ ├── Verification of Liabilities
│ ├── Sales → Sales-related documents
│ └── Purchases → Purchase-related documents
│
└── (2) Substantive Analytical Procedures (SA 520)
└── Compare ratios, trends, relationships with
expected values (e.g., industry benchmarks)
```
### Auditor's Choice of Procedure Mix
The auditor determines the most appropriate approach based on circumstances:
| Approach | When Appropriate |
|---|---|
| Only Substantive Analytical Procedures | Low risk, predictable relationships, reliable data |
| Only Tests of Details | High risk, complex transactions, no reliable trends |
| Combination of Both | Most situations — use analytical to direct testing effort |
| Enhanced Substantive Procedures | When internal controls are ineffective — cannot reduce work via TOC |
> Rule: When controls are ineffective, the auditor must rely solely on substantive procedures and cannot reduce their extent based on TOC results (and vice versa — when controls are strong and TOC is satisfactory, substantive work can be reduced but not eliminated).
### Relationship Between TOC and Substantive Procedures
```
TOC Result Satisfactory → Limited (reduced) Substantive Procedures
TOC Result Unsatisfactory → Increased/Extended Substantive Procedures
Controls Ineffective/Absent → Full Substantive Procedures only
```