Question

You are the external auditor for Company C and you have just completed the invoice audit....

You are the external auditor for Company C and you have just completed the invoice audit. Based on the substantive tests, it appears that the level of income reported by the company may be overstated. You let your audit supervisor know and she says to pull more invoices to see if your discovery is correct. Do you think that more invoices should be pulled? Why or why not? Provide specific details to support your opinion in your response.

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Answer #1

Substantive tests are tests performed wherein large volume of transactions are checked in detail. This method is used in cases of weak internal control. In substantive tests, as large volume of transactions are checked, there is high chance of all misstatements to be found out. An extensive detail of all types of invoices are expected t be already verified here.

Why substantive approach in first place was used? This could be due to result of internal control testing results to come as weak internal controls.

Eternal auditor has already audited large volume of invoices and found that income reported by company may be overstated. There is negligible chance that external auditor's opinion is wrong.

But to present case with data, Supervisor may think that auditor pulls more invoices and does audit on them. This would help supervisor to present data in more detail to raise objection.

Though its understood that external auditor has already the task. But from supervisor's point of view, to raise an objection and discuss this with the client, external auditor can pull more invoices and audit them to come across more discrepancies to be presented to client management. It could be serious fraud which is in stages to be uncovered. Hence, more audit is better.

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