SA 330 — Substantive Procedures: Analytical Procedures and Tests of Details (Vouching and Verification)
## Substantive Procedures under SA 330
### Definition
Substantive procedures are audit procedures designed to detect material misstatements at the assertion level.
> Mandatory rule: Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.
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### Two Types of Substantive Procedures
#### Type 1: Substantive Analytical Procedures (SAP)
Governed by SA 520
Based on analysis of plausible relationships among financial and non-financial data
Suitable when risk assessment is supported by evidence from tests of controls
Physical inspection of machinery to confirm it exists at balance sheet date
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### Choosing the Right Approach
Circumstances
Recommended Approach
Risk is low; ToC provides strong evidence
SAP alone may reduce audit risk to acceptably low level
High inherent risk; controls not reliable
Tests of details
Mixed risk profile
Combination of SAP + tests of details
ToC results are unsatisfactory
Increase extent of substantive procedures
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### Extent of Tests of Details
Ordinarily determined in terms of sample size
Other selective testing methods (e.g., targeting high-value or high-risk items) are also relevant
When ToC results are unsatisfactory → extent of substantive procedures must increase to compensate for lack of reliance on controls
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### Vouching vs Verification — Key Distinction
Dimension
Vouching
Verification
Focus
Transactions in books
Balances at period-end
Primary assertion tested
Occurrence, Completeness, Accuracy
Existence, Valuation, Rights & Obligations
Typical documentation
Source documents (invoices, GRN, contracts)
Physical inspection, third-party confirmations, title deeds
Example
Purchase invoice chain for a purchase entry
Physical count of inventory or fixed assets
Worked example
### Example 1
Vouching a Purchase Transaction: The auditor selects a purchase transaction recorded in the purchase journal for ₹5 lakhs. The auditor traces it through: (1) Purchase Order — approved by authorized person; (2) Supplier Invoice — matches PO in description and amount; (3) Goods Received Note (GRN) — confirms goods were received; (4) Inward Gate Entry Register — corroborates physical receipt. All four documents agreeing establishes the authenticity of the transaction.
### Example 2
Verification of Fixed Assets: The balance sheet shows machinery worth ₹50 lakhs. The auditor performs a test of balance (verification): (1) physically inspects a sample of machines and confirms they exist at the balance sheet date; (2) cross-references each to the Fixed Asset Register; (3) reviews the entity's physical verification report signed by management; (4) checks that depreciation has been correctly computed. This establishes existence, ownership, and valuation assertions.
### Example 3
When to Increase Substantive Procedures: During ToC, the auditor finds that the sales invoice approval control has a 15% deviation rate (far above acceptable threshold). The auditor cannot rely on this control. Accordingly, the auditor increases the sample size for vouching of sales transactions and also performs additional substantive analytical procedures comparing sales trends with industry benchmarks.
⚠️ Common exam mistakes
Confusing vouching (testing transactions — going from books to source documents) with verification (testing balances — confirming assets/liabilities exist and are correctly valued)
Believing substantive procedures can be completely skipped when internal controls are very strong — SA 330 mandates them for every material item regardless
Treating sample size as the only determinant of the extent of tests of details — selective testing methods targeting high-value or risky items are equally valid
Failing to increase substantive procedures after obtaining unsatisfactory ToC results
Treating Substantive Analytical Procedures and Tests of Details as mutually exclusive — they are often most effective in combination
Bare-Act text Substantive Procedures — Nature, Extent, and Classification · SA 330 — The Auditor's Responses to Assessed Risks (ICAI) · click to expand
Substantive procedures are audit procedures designed to detect material misstatements at the assertion level. Substantive procedures comprise: (i) Tests of details (of classes of transactions, account balances, and disclosures), and (ii) Substantive analytical procedures.
Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.
Tests of details are further classified into tests of transactions i.e., vouching and tests of balances i.e., verification.
Because the assessment of the risk of material misstatement takes account of internal control, the extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory.