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ACCA F8 Substantive Testing - Part 1

ACCA F8 Substantive Testing - Part 1

In this first part of a two-part article aimed at students of the ACCA F8 paper, Paul Merison illustrates the differences between control tests and substantive tests and explains how audit tests are aimed at testing the assertions in the financial statements …

How auditors get evidence

Before I focus on substantive testing, let’s make sure you understand the critical difference between control tests and substantive tests. External auditors need to get sufficient evidence that the Financial Statements are free from material misstatement. They get this evidence in 2 main ways:

  • Tests of Control, because if the client’s control system is working, then it seems fair to assume that the financial statements are reasonably protected from mistakes;
  • Substantive Testswhere the auditor looks for physical evidence supporting the figures and disclosures in the financial statements.

In simple terms, control tests involve checking that a client’s control is working, whereas a substantive test involves ignoring client systems and just checking the numbers.

An example:

Companies try to ensure their cashbooks and bank statements are accurate by reconciling them. An auditor checks that the reconciliations are being done regularly, and that problems are investigated and signed off as finalised by a senior staff member at the client. This control test provides evidence that the client is checking their own figures.

The auditor then checks a sample of cashbook entries to ensure they are real, and agrees bank balances per the client with the bank itself – these are substantive tests to check the bank figure is accurate on the Statement of Financial Position.

Much of the real world works in a similar way – if I am a schools inspector, I will look at the school’s procedures manual and look for evidence they are following it, because this tells me that the education provided is likely to be good quality, as it is well controlled. But I will also watch some classes myself and check pass rates on exams, to substantiate the quality of the education in a more direct way.

Substantive Testing – Assertions

For each number or disclosure in the Financial Statements, auditors need to test a few things. These things to test are called assertions and depend on what item we are testing, but as a useful short cut remember this for anything you substantively test:

  • Check that everything that should be included in the total, is indeed included (COMPLETENESS)
  • Check that everything that is included in the total, SHOULD be included (EXISTENCE for assets and liabilities, and that sales revenue and expense items have OCCURRED)
  • Check the number recorded is ACCURATE (or appropriately VALUED)


To test an assertion, auditors have a variety of testing techniques – a useful list for generating tests is AEIOU:

  • Analytical (compare the item with other things, such as prior year, industry average)
  • Enquiry (ask directors, or better a 3rd Party, to confirm information in writing)
  • Inspection (look at a document, or asset, or the ledgers/books of prime entry)
  • Observation (of an asset in use)
  • RecalcUlation (e.g. of depreciation)


One final list that I find useful to think up ideas for tests is the 5 types of evidence, which I like to call DADA3:

  • Documents (invoices, GDNs, order forms, bank statements etc.)
  • Assets (which can be inspected to verify existence, and to assess value)
  • Directors (and other members of client’s staff, who can confirm things in written representations)
  • Accounting System (asset register, inventory list, cashbook, ledgers, sales day book etc.)
  • 3rd Parties (lawyers, surveyors, bank, customers, suppliers etc., all useful independent people who can verify things in writing about the client)


Now we have the essential knowledge and understanding, we can score some marks. But to score the big marks, we need to apply the ideas in this article to generate the tests, and to explain them in sufficient detail. This will be discussed in detail in Part 2 of this article.

Paul -Merison Paul Merison is LSBF London Director of ACCA

Already thinking about your next set of papers? Get a head start and study ACCA on campus or online.


A version of this article was published in PQ Magazine.


< Principal image, courtesy of ‘LordFerguson’ on Flickr / Some rights reserved >

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