Directional Testing

Question 1

How are substantive tests designed?

Answer 1

To discover errors or omissions?

Question 2

What categories do substantive procedures fall into>

Answer 2

Tests to discover errors
Tests to discover omissions

Question 3

What are result of tests to discover errors?

Answer 3

Resulting in over- or understatement

Question 4

What are result of tests to discover omissions?

Answer 4

Resulting in understatement

Question 5

What do tests to discover errors start with>

Answer 5

The accounting records in which the transactions are recorded to supporting documents or other evidence

Question 6

What do tests to discover errors detect

Answer 6

Any overstatement and any understatement through causes other than omission

Question 7

An example of a test to discover errors?

Answer 7

Test is designed to ensure that sales are proced correctly, would begin with a sales invoice selected from receivables ledger. Price would then be checked to the official price list

Question 8

What do tests to discover omissions start with?

Answer 8

Outside the accounting records and then matched back to those records

Question 9

How are understatements through omission never revealed?

Answer 9

By starting with the account itself, as there is clearly no chance of selecting items that have been omitted from the account

Question 10

An example of a test for omission?

Answer 10

A test is designed to discover whether off raw material purchases have been properly processed, it would start with GRM to be agreed to inventory records or payable ledger