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Dear sir/madam,
I would like to clarify the difference between test of control and substantive test. test of control is when the IA test internal controls. If the IA find a discrepancy in the sample of for example invoices, then substantive tests may follow to detect MM.
Is this correct pls?
Ra yan – by all means help out your fellow students on the ACCA forum, but please leave the Ask the AAA Tutor posts to me 🙂
Antonella – I am not sure why you refer to IA – are you thinking internal audit? In the context of the external/statutory audit of financial statements it is the external/auditor who tests controls if seeking to place reliance on them. Then yes, if the number of exceptions in applying controls is unacceptable – i.e. the control is NOT effective, the auditor must revert to full substantive procedures. But, as Ra yan points out – even if controls are effective, there must always be some substantive procedures. This should make sense to you because tests of controls ask “was the control applied? – Y/N?” – it matters not whether the related transaction was $1, $100 or $1m. Only substantive procedures are concerned with monetary amounts (that can quantify misstatement).
You might find it helpful to look at Chapter 8 of the AA notes for a more comprehensive overview.
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