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Are the tests of controls performed before the audit plan in order to find out how much audit procedures to perform by placing reliance on internal controls. So is it that testing of controls takes place first then audit plan is made …but to perform tests of controls also we need audit plan on how to do that … ? What comes first ?
Tests of controls are only performed if controls are expected to be effective, so they can be relied on to reduce the amount of substantive procedures.
See the overview at the beginning of Chapter 7 – planning the audit (ISA 300) requires understanding the entity and assessing the risk of material misstatement (ISA 315) and responding to the assessed risks (ISA 330). The overall audit strategy and audit plan aren’t “cast in stone” but must be revised, as necessary, as the audit progresses.
So if, for example, through understanding the entity (including internal controls) the auditor expects controls will be “good”, he will plan to perform tests of controls. But if when testing controls they are found to be ineffective, the plan must be changed to a fully substantive approach.
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