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Hi Sir,
If you are asked to describe audit procedures about something, does it mean that you can describe audit procedures on testing of internal controls and also substantive procedures?
Also, when you are asked for example substantive procedures on wages, if I mention confirm that TAX rates are entered correctly in the payroll software for individual employees, to confirm that tax rates are being calculated correctly. Would this fall more under testing of internal controls or it is a good example of a substantive procedure?
First question. You can usually only talk about tests of control if the internal control system has been described in the question. You can’t just assume certain controls are there. Substantive tests are more universal.
Second question. A test of control means you are testing the operation of a control. If you are simply testing that the proper tax rates are being used, that is a substantive test. If, however, tax rates were signed off for each employee by the salaries manager, testing the presence of that person’s signature would be a test of control because the manager is carrying out a control procedure.
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