In auditing, what does substantive testing mean? And when does auditor use this?

Substantive testing is the detailed testing of transaction in order to determine Material Misstatement at assertion level.

First Auditor perform Test of Control to determine the operating effectiveness of Controls,When Test of controls confirm the transactions may be contained Material Misstatements then Auditor will go Substantive testing to confirm transactions at detailed level.

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. The following list is a sampling of the available tests:

• Conduct a bank confirmation to test ending cash balances
• Contact customers to confirm that accounts receivable balances are correct
• Observe the period-end counting of inventory
• 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

it means to test the material in corrent way. this procedure insures that there is no misstatement of documentation.

When an auditor assesses the control risk as high, he will not be able to adopt a system based approach to the audit. Instead he will carry out extensive substantive testing. 

Substantive tests are audit procedures carried to detect any material misstatements in the figures reported in the financial statements. They are designed to obtain evidence about the financialstatement assertions . They include:

1. Tests of detail on transactions, account balances and disclosures and

2.Aanlytical procedures.