ABREMA: audit sampling and testing: example: tolerable level comparison: substantive testing

Audit testing procedures

Example: Tolerable level comparison: substantive testing

The auditor compares the actual level of exceptions ($106,920) to the tolerable level ($200,000). As the estimated actual level is less than the tolerable level, management's assertion that inventory is accurately valued may be accepted. Accordingly, no change to the planned substantive procedures is required and the auditor concludes that inventory is, in all material respects, accurately valued.

However, the exceptions detected ($106,920) are still brought to the attention of the client's management. If management declines to alter the accounting records and the auditor rejects their explanation for not recording the misstatement, then the auditor includes the misstatement on the Schedule of Audit Differences. This schedule is considered in its entirety during the opinion formulation stage of the audit.

Audit testing procedures, index page