What is the difference between tests of controls and substantive procedures? Give an example of each.

What the interviewer wants to hear

• Tests of controls check whether controls operated effectively
• Substantive procedures detect material misstatements in amounts
• Substantive procedures include tests of details and analytics
• Gives a clear example of each
• Control results affect the extent of substantive work

Model answer

Tests of controls check whether a control worked as designed throughout the period. For example, I might select 25 supplier payments and check that each was approved by an authorised person before release, and that the approval happened before payment. Substantive procedures look directly for misstatements in the numbers. They include tests of details, like vouching a sample of sales entries to invoices and dispatch notes, and substantive analytical procedures, like comparing interest expense with average borrowings times the interest rate. The two are linked. If controls test well, I can assess control risk as lower and reduce the extent of substantive testing. If controls fail, I rely more on substantive work and usually increase sample sizes. Some substantive procedures are always needed for each material area, whatever the controls show.

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