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Testing of actual operation of the internal control- Procedural tests Old Course -- (M20R/N20E/
QNO--
330.14 and Examination in depth- Example - Procedure for sales. SM20/SM21/M23R)
Bhaskar CNO SA330.090
It has been suggested that actual operation of the internal control should be tested by the application of
procedural tests and examination in depth. Explain with the help of example in respect of the procedure
for sales.
Answer ➢ It has been suggested that actual operation of the internal control should be tested by the application
of procedural tests and examination in depth. Procedural tests simply mean testing of the compliance

with the procedures laid down by the management in respect of initiation, authorisation, recording
and documentation of transaction at each stage through which it flows.

➢ For example, the procedure for sales requires the following:
➢ Before acceptance of any order the position of inventory of the relevant article should be known
to ascertain whether the order can be executed in time.
➢ An advice under the authorisation of the sales manager should be sent to the party placing the
order, internal reference number, and the acceptance of the order. This advice should be
prepared on a standardised form and copy thereof should be forwarded to inventory section to
enable it to prepare for the execution of the order in time.
➢ The credit period allowed to the party should be the normal credit period. For any special credit
period a special authorisation of the sales manager would be necessary.
➢ The rate at which the order has been accepted and other terms about transport, insurance, etc.,
should be clearly specified.
➢ Before deciding upon the credit period, a reference should be made to the credit section to know
the creditworthiness of the party and particularly whether the party has honoured its
commitments in the past.

QNO Substantive Procedures Old Course - (N19E/SM17/N18E/SM20/SM21)
330.15 Bhaskar CNO SA330.100
A multinational co. wants to appoint you to carry the statutory audit.” Discuss with reference to SA 330 the
substantive procedures to be performed to assess the risk of material misstatement.
OR
While carrying out the statutory audit of a large entity, what are the substantive procedures to be
performed to assess the risk of material misstatement?
OR
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. Analyse
and explain.
Answer ➢ Substantive Procedures for Material Items
Designing and Performing Substantive 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.
This requirement reflects the facts that:
• The auditor’s assessment of risk is judgmental and so may not identify all risks of material
misstatement; and
• There are inherent limitations to internal control, including management override.

➢ Types of Substantive Tests
Depending on the circumstances, the auditor may determine that:
• Performing only substantive analytical procedures will be sufficient to reduce audit risk to an
acceptably low level. For example, where the auditor’s assessment of risk is supported by audit
evidence from tests of controls. (Electricity bills payments)
• Only tests of details are appropriate. (Legal Expenses)
• A combination of substantive analytical procedures and tests of details are most responsive to
the assessed risks (Salary)

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