Can substantive analytical procedures with data and data analytics replace sampling as tests of details?

Document Type

Article

Abstract

To avoid problems caused by moderate or weak substantive analytical procedures (SAPs), audit firms tend to focus more on tests of details than SAPs, especially for large income statement accounts such as revenues. Based on findings from previous studies, this commentary study attempts to: (1) summarize the outcomes of SAPs developed by advanced analytics models (e.g., regression and time-series models), and (2) respond to the question of SAP use by evaluating the limitations and benefits if one test replaces the other. The outcomes of prior studies generally show that SAPs developed by advanced analytical models do not provide a high level of assurance for revenue. Since SAPs and audit sampling present different risks and unique benefits, they are often complementary. Without the careful consideration of conditions related to the risks and benefits of each test, simply avoiding SAPs could reduce the effectiveness of substantive tests.

Publication Title

Journal of Emerging Technologies in Accounting

Publication Date

2021

Volume

18

Issue

2

First Page

185

Last Page

199

ISSN

1554-1908

DOI

10.2308/JETA-19-03-23-10

Keywords

audit sampling, data analytics, revenue testing, substantive analytical procedure

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