Question

For each of the following substantive tests, state one assertion that is tested:

(1) Vouch an entry in the Purchases Journal to the corresponding Receiving Note and Purchase Order.

(2) Perform a review of subsequent receipts.

(3) Compare the carrying amount of a line of inventory with its market price.

(4) Compare the ending balance of Accounts Payable with those of recent years.

(5) Perform an Ageing of Debtors.

Answer 1

Q. No.	Substantive test	Assertion tested	Reasons
1	Vouch an entry in the Purchases Journal to the corresponding Receiving Note and Purchase Order	Occurrence	Occurrence means that a transaction took place which pertains to the entity during the relevant period. When an auditor checks the corresponding receiving note, the auditor is looking to establish that goods/materials were received in the reporting period. This is also helpful in cut-off procedures. Examination of purchase order helps an auditor understand whether such purchase was authorised in the reporting period or not.
2	Perform a review of subsequent receipts	Rights and obligation	Rights mean that asset is the right of the entity and liability is an obligation of the entity at a given date. Whenever, an auditor tests for subsequent receipt/payment, it helps an auditor verify rights and obligation. Hence, testing subsequent receipt helps auditor to gain assurance that the reported financial asset is a right.
3	Compare the carrying amount of a line of inventory with its market price.	Valuation	Valuation means whether the asset or liability is recorded and reported at appropriate carrying value. In case of inventory, the auditor compares the carrying amount to test for any impairment loss.
4	Compare the ending balance of Accounts Payable with those of recent years.	Valuation	Valuation means whether the asset or liability is recorded and reported at appropriate carrying value. This is done to ensure that current year’s opening balances have initiated from the audited closing balance of previous year.
5	Perform an Ageing of Debtors	Valuation	Valuation means whether the asset or liability is recorded and reported at appropriate carrying value. Ageing of debtors will allow auditors review the process that a company follows to derive an allowance for doubtful accounts and provisions created for receivables are adequate.