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Hello Sir, I hope you are safe.
Could you please help me understand this bit of Test of control about Supplier statement reconciliation.. as I remember you mentioning that Reperforming a reconciliation is a substantive test.TOC=
”Re-perform a sample of the
reconciliations to ensure that they have
been carried out appropriately.”Is it that a ”sample” is being reperformed and the fact that we’ve mentioned that this is to test effectiveness which makes the above appropriate as a test of control?
It’s not that it is a sample – if you look at our chapter on audit sampling you will see that there are examples of the evaluation of results for both a test of controls and tests of details.
This is where it gets slightly complicated and I don’t think it would be specifically tested in AA – but an audit procedure may, in practice, the reperformance of a control may be designed and implemented in such a way that it is “dual purpose”.
If, for example, you looked for evidence of review of reconcilations (e.g. a signature) that would be a TOC – but it provides only indirect evidence – e.g. because it could have been signed and not checked. Therefore to reperform it is not only substantive but provides direct evidence that control operated effectively – if reperformance revealed any error, that would highlight a deviation in the operation of the control – and the auditor could NOT then rely on its operation (as evidenced by the signature). You will see in the audit sampling chapter that tolerance for deviations in tests of controls is very low.
As you “got” the distinction according to my previous explanation, that is how I suggest you think about it for the exam.
Oh, my bad for not having watched audit sampling before internal controls. I’m sorry.
Ok so from the exam point of view, the examiner often says that people suggest substantive tests instead of TOC which is wrong so if I’m writing reperformance as my TOC I’ve to be clear with the explanation that follows this TOC, as in what makes this a TOC.
Also it’s better if I avoid using such dual purpose procedures at all.. please correct me
You are SPOT on!
Since the requirements in Section B should always be clear what procedures are called for – tests of control OR substantive procedures (rather than generic “tests”) you shouldn’t need to worry about dual purpose.Ask yourself – does the test determine whether a control has operated – yes/no? or does it substantiate a monetary $ amount?
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