Final answer:
The term "substantive" originates from the Latin "substantia," meaning substance or essence, which reflects the core or fundamental reality of a thing. In auditing, it means gathering conclusive evidence to establish the truth and reliability of financial statements by examining their transactions and account balances. Hence, the correct answer is option (1).
Step-by-step explanation:
The term "substantive" comes from the Latin term substantia, which is translated as "substance." This term is often used to refer to the basic reality or essence of a thing, embodying what truly makes something what it is, independent of incidental or secondary features. In the context of auditing, "substantive" relates to the gathering of evidence to verify the transactions, account balances, and disclosures provided by management in the financial statements. Thus, establishing their substance or realness in the context of an audit.
The ancient philosophers explored the concept of fundamentality, asking What is the foundation of reality? The notion of fundamentality and the search for the basic realities suggested that there is an underlying essence to everything considered real. This essence stood unaffected by superficial changes over time, much like the core principles involved in substantive auditing today.