Substantive procedures required for the financial statement close process include

What EY can do for you

With the insights gained from EY’s financial statement close process assessment, you can move forward with more confidence in your close process. It helps you understand whether, where and why mistakes are made or bottlenecks happen or extra effort is expended. It can also point you toward improvements in reliability, accuracy, speed and cycle time, and efficiency needed by the company you’re running today, or the one you expect to run tomorrow. Based on the assessment, our findings can help you:  

• Compare current performance against leading practices
• Improve the quality of data captured through your closing process to limit the number of adjustments
• Identify improvements for reducing the number of days to close the books
• Help point the way to better content for KPIs, management reporting and dashboards
• Identify opportunities to reduce finance function costs

How the EY assessment works

Your EY audit teams can use a combination of qualitative and quantitative methods to evaluate your financial statement close process. We conduct the following five-step assessment and report our findings and recommendations back to you:

1. Benchmark analysis
   Using an independent, high-quality database of metrics, our teams can evaluate your company’s financial statement close process performance against leading practices. 
2. Maturity assessment
   Our maturity assessment tool allows you to self-assess the current performance for each of the key finance sub-processes (i.e., process and policy, reporting and management performance, organization, data, people and technology) as compared to leading practices and determine the expected future state.
3. Detailed review of the financial statement close process activities
   For each key sub-process, our teams assess the quality of procedures in place and the execution timing and velocity; investigate risks and controls in place; and provide you with gap analyses, insights and recommendations. We can also review your current close process and identify issues that slow the process down. As a result, we can provide you with findings and recommendation that can help you spend less time producing financial reporting and achieve a more robust and well-documented process.
4. Review of dashboards, KPIs and monthly reporting packages
   Our team assesses the quality and relevance of your dashboards, KPIs and monthly reporting packages. We review objectives, processes, computations and frequencies. Based on our review, we can provide improvement recommendations for your KPIs to harmonize with the other materials and for your dashboards and monthly reporting packages to increase their relevance and effectiveness.
5. Findings and recommendations report
   This report includes all results of the diagnostic and also outlines findings and recommendations to help you build a more effective finance function.

What is Substantive Testing?

Substantive testing is an audit procedure that examines the financial statements and supporting documentation to see if they contain errors. These tests are needed as evidence to support the assertion that the financial records of an entity are complete, valid, and accurate. There are many substantive tests that an auditor can use. If substantive testing turns up errors or misstatements, additional audit testing may be required. In addition, a summary of any errors found is included in a management letter that is shared with the client's audit committee.

Types of Substantive Tests

The following list is a sampling of the available tests:

• Issue a bank confirmation to test ending cash balances

• Contact customers to confirm that accounts receivable balances are correct

• Observe the period-end physical inventory count

• Confirm the validity of inventory valuation calculations

• Confirm with experts that the fair values assigned to assets obtained through a business combination are reasonable

• Physically match fixed assets to fixed asset records

• Contact suppliers to confirm that accounts payable balances are correct

• Contact lenders to confirm that loan balances are correct

• Review board of directors minutes to verify the existence of approved dividends

As indicated by the examples, substantive testing is likely to include confirmation of account balances with third parties (such as confirming receivables), recalculating calculations made by the client (such as valuing inventory), and observing transactions being performed (such as the physical inventory count).

Substantive Tests for Internal Audits

Substantive testing may also be conducted by a company's internal audit staff. Doing so can provide assurance that internal recordation systems are performing as planned. If not, the systems can be improved to eliminate the issues, thereby providing for a cleaner audit when the external auditors conduct their tests at year-end. Internally-conducted substantive testing may occur throughout the year.

What does substantive procedures include?

What are the three main types of substantive procedures?

What are the main types of substantive procedures?

What kind of substantive procedures are we required to perform for any relevant assertions of newly identified significant accounts?