Substantive Procedures in Auditing: Definition & Explanation

This blog post will start with a definition of the term substantive procedures, and then provide a background, definitions, and examples of substantive procedures in auditing, including: – Identifying and eliminating substantive procedures – Identifying and evaluating an auditor’s performance – Modern substantive audits

The first thing you need to know is that the word substantive means substantial. Also, if you ask a banker, the term substantive means “real” or “genuine”. It’s safe to say that the word substantive means something that is not frivolous. If you are writing an article about substantive procedures in auditing, then you are writing about something that is not frivolous. However, substantive is a tricky word, and it means different things to different people.

Home » Bookkeeping » Process Costing

Sep 22, 2020
Bookkeeping by Adam Hill

The basic cost calculation is work-in-process plus costs incurred for the month divided by total equivalent units. Companies often break down production costs into direct material costs and conversion costs. Conversion costs include the direct labor and manufacturing overhead for each production process.

Labor costs

Such items as fresh dairy products, fruits, and vegetables should be sold on a FIFO basis. In these cases, an assumed first-in, first-out flow corresponds with the actual physical flow of goods. Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Business owners allocate business costs according to the number of processes each good travels through in the production system. Each process applies direct materials, labor and manufacturing overhead to the production cost total.

Accounting for Managers

Cost accounting helps managers determine the costs of running a business by recording the costs of materials, processes, and projects. Analyzing trends on costs of production and overhead along with revenue helps management make informed decisions on how to improve, scale, or grow effectively. Cost accounting utilizes either job costing, process costing, or a hybrid of both. In this article, we will discuss the differences between job costing and process costing as well as advantages or disadvantages of each. A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process.

Management accountants take the total number of goods leaving the process and divide the total process cost by this number. Manufacturing companies follows the process costing and the production process is carried on in two or more centers continuously. It is a basic method of allocating total costs to a unit of product in process wise. This system accumulates costs by time period and associates them with the output produced during the same period.

In process costing systems, production costs are not traced to individual units of output. Then assign the costs to units of output as they move through the departments. The process costing method is typically used for processes that produce large quantities of homogeneous products. Computing individual unit costs in process costing is a fairly basic process compared to other cost accounting methods.

When a business creates or manages products in batches and charges based on the batch as well as costs labor as an individual unit, hybrid costing can help. Prefabrication contractors are an example of those who benefit from hybrid costing. Each unit prefabricated for a project, or batch, is cost based on the batch. While the workers are usually cost based on the hours worked on an individual unit level. This can ensure that the overall rice is still low enough to remain competitive while covering all operational, material and labor costs.{“@context”:”https://schema.org”,”@type”:”FAQPage”,”mainEntity”:[{“@type”:”Question”,”name”:”What is substantive analytical procedures in auditing?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” Substantive analytical procedures in auditing are the methods used to determine whether a transaction is an improper or illegal act.”}},{“@type”:”Question”,”name”:”What does substantive mean in auditing?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” Substantive means “having substance or worth.””}},{“@type”:”Question”,”name”:”What is substantive analytical procedures examples?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” Substantive analytical procedures examples are procedures that are used to analyze the substantive content of a text.”}}]}

Frequently Asked Questions

What is substantive analytical procedures in auditing?

Substantive analytical procedures in auditing are the methods used to determine whether a transaction is an improper or illegal act.

What does substantive mean in auditing?

Substantive means “having substance or worth.”

What is substantive analytical procedures examples?

Substantive analytical procedures examples are procedures that are used to analyze the substantive content of a text.