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hi
Can you advise how best to avoid mistaking tests of controls with audit procedures.
I really would like to avoid learning off by heart but on the other hand I am worried that when asked to list test of controls for inventory for example I will included elements of auditing inventory and vice versa
thank you !
Try to think: “What could go wrong?”. So in inventory:
Theft
Damage
Wrong goods issued or issued without authorisation
Not booked in properly.
etc.Then think “What controls would stop that happening or detect it if had happened?”
Controls would then be things like: physical controls, regular counts, authorisation of goods issued notes, procedures for updating records on the receipt of goods.
Having identified controls that could work then those need to be tested.
that makes sense, thank you !
would you advise any question i could ask while thinking of appropriate substantive tests for receivables, etc?
Substantive tests are aimed at addressing assertions, so any test that inquired into:
Existence
Rights and obligations
Completeness
Valuation
Allocationwould be relevant. For example, you would need to trace items making up some balances to invoices, despatches and orders (existence) and receivables circularisation (also existence). Valuation can be addresses by examined aged analyses and tracing to receipts after the balance sheet date.
ok
thank you, the book i am using for my study uses assertions as headings for both, test of controls and subst. tests. so that is why i am getting confused as for Existence, I am told to do different things depending if I am doing test of controls for Sales or subts. testing of Receivables but i think if I use your method of asking “What could go wrong?” in test of controls I hopefully will not confuse it with subt. testing.
Thank you
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