Final answer:
An auditor examining purchase orders to verify proper transaction authorization is conducting substantive testing aimed at detecting material misstatements in financial statements and ensuring proper authorization within internal controls.
Step-by-step explanation:
If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting substantive testing. This type of testing involves directly obtaining evidence to confirm the validity and integrity of transactions recorded in the financial statements. The objective is to detect material misstatements that could affect those statements. For example, if the auditor is inspecting a sample of purchase orders, they may be looking to ensure that each order has been approved by an authorized individual within the company, in accordance with the company's internal controls. Proper authorization is a fundamental aspect of internal controls to prevent fraud and errors in the accounting process.