ACCA Audit and Assurance (F8) Practice Exam

Which type of audit procedure is specifically aimed at detecting misstatements?

1. Risk Assessment

2. Tests of Controls

3. Substantive Procedures

4. Analytical Procedures

The correct answer is: Substantive Procedures

Substantive procedures are specifically designed to detect misstatements in financial statements. These procedures provide direct evidence about the completeness, accuracy, and validity of the financial information presented. Substantive procedures typically include both tests of details (which involve verifying individual transactions and balances) and substantive analytical procedures (which involve evaluations of financial information through analysis and comparisons). The primary goal of these procedures is to gather sufficient audit evidence regarding the assertions made by management in the financial statements. They assist auditors in determining whether misstatements, whether due to fraud or error, exist within the financial records, making them essential for achieving a reasonable level of assurance. In contrast, risk assessment procedures are aimed at identifying and assessing the risks of material misstatement but do not directly detect misstatements themselves. Tests of controls focus on the effectiveness of internal controls but do not provide direct evidence regarding misstatements either. Analytical procedures, while useful in identifying areas that may require further investigation, are primarily used for planning and overall reasonableness checks rather than for direct detection of misstatements.