implications of effective internal controls

By way of introduction/context:

There are two broad types of audit procedure:
– tests of controls (ToCs) and
– substantive procedures.

There are two types of substantive procedure:
– tests of details (e.g. recalculation individual invoice amounts) and
– substantive analytical procedures (SAPs).

There is no “one size fits all” formula how much evidence is obtained from each type of procedure – “it depends”. So, for example, if controls are:
– not effective – ToCs are ruled out – meaning that more evidence must come from substantive procedures;
– operating effectively – it will be more efficient to perform ToCs and reduce substantive procedures.

Then how those substantive procedures are “split” between SAPs and tests of details “depends” again on what it is you are testing. For some expense items (e.g. depreciation, interest, even payroll) sufficient evidence might be obtained from SAPs alone – so why bother at all with tests of details? For other classes of transaction (e.g. non-current asset additions or disposals) there may be no meaningful SAPs to be devised – so only tests of details will be planned. Of course there will be some things that might be a mixture – e.g. SAPs for revenue but because revenue recognition is always a significant risk, you would expect to perform some tests of details also – e.g. on cut-off.

See also here – remember “A” is only one source of evidence in “AEIOU” https://opentuition.com/topic/substantive-procedures-29 – so sometimes it will be sufficient – but sometimes not. It also depends on the assertion. Can you think of a SAP that would provide sufficient evidence for the assertion of “existence” of non-current assets for example? (Answer should be no.)