The definition of what constitutes an exception is considered at the same time as the determination of the audit objective and the identification of the related population. The definition of an exception can effect the identification of the population. For example, given the audit objective is to gather evidence as to the completeness of purchase transactions, then an auditor may decide to gather evidence that all purchase requisitions issued during the year resulted in a recorded purchase transaction. The auditor may then define an exception as a purchase requisition for which there was no purchase transaction recorded before year end. However, it is highly likely that there will exist a number of purchase requisitions that resulted in a purchase transaction after year end, which may not be of concern to the auditor. This means that either the definition of an exception will need to be changed (for example, to exclude purchase transactions recorded after year end), or the identification of the population changed (for example, to exclude purchase requisitions that resulted in purchase transactions that were recorded after year end).
Exceptions are categorized into atypical, systematic and random exceptions as part of the qualitative evaluation of exceptions.
Control testing. An exception found during control testing is evidence that an internal control procedure has not been complied with (when management asserts that it has). Auditors refer to this type of exception as a control deviation.
Substantive testing. An exception found during substantive testing is evidence gathered that a class of transaction or an account balance is not complete, valid or accurate when management asserts that it is. Auditors refer to this type of exception as a misstatement.
Audit testing procedures, index
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