## Factors to Consider When Using Substantive Analytical Procedures (SAP)
Before relying on SAP as substantive evidence, the auditor evaluates seven factors:
---
### i) Availability of Data
Relevant, reliable data must be obtainable. Without adequate data, SAP cannot be performed effectively.
---
### ii) Disaggregation
Breaking totals into smaller components before applying AP.
- More disaggregation = Better results — a variance in a disaggregated sub-account is more informative than a variance in an aggregate balance.
---
### iii) Account (A/c) Type
| Account Type | SAP Usefulness |
|---|---|
| Accounts that accumulate transactions over a period (e.g., revenue, wages) | Useful — patterns are predictable |
| Accounts showing net effect of transactions at a point in time (e.g., net debtors, closing inventory) | Not useful — too many offsetting movements |
---
### iv) Nature of Assertion
SAP is most useful for testing assertions such as:
- Completeness — are all transactions recorded?
- Valuation — are amounts correctly measured?
- Rights and Obligations — does the entity own/owe what is stated?
---
### v) Source of Transaction (Routine vs. Non-Routine)
| Nature | SAP Usefulness |
|---|---|
| Routine transactions (predictable, recurring) | Useful — transactions follow a predictable pattern |
| Non-routine transactions (e.g., R&D estimates, restructuring provisions) | Not useful — not predictable; subject to management judgement |
---
### vi) Predictability
SAP is useful when account balances or relationships between accounts are inherently predictable.
- Example: Total commission = Sales × Commission rate (perfectly predictable if the rate is fixed).
---
### vii) Inherent Risk
Ask: "What can go wrong?"
| Risk Level | Response |
|---|---|
| High Inherent Risk / Significant Risk | Combine SAP with Tests of Details — SAP alone is insufficient |
| Lower risk | SAP may suffice as the primary substantive procedure |