Difference between compliance and transaction tests

HillsR Registered Posts: 4 New contributor 🐸

I'm looking through a past simulation and I'm really struggling to work out the difference bewteen compliance and transaction tests. For example, I know that checking orders to delivery notes, checking invoices to purchase ledger and checking the arithmetical accuracy of an invoice etc etc are all tests but I can't work out under which heading they go!! If anyone could help me understand then I'd be so grateful as I have my Audit Simulation tomorrow.

Thanks guys :001_smile: xxx


  • peugeot
    peugeot Registered Posts: 624
    Compliance tests are essentially 'tests of internal controls' and are used to determine how effective the controls in a certain audit area are in order to establish whether or not reliance can be placed on them. For example if the auditor is told that a director must sign cheques over £1,000 then a compliance test in this area would be to review a sample of outgoing cheques to prove the director is the only signatory of cheques over £1,000. If the cheques in the sample have only been signed by a director this compliance test suggests that the internal controls work and reliance can be placed on them. If some cheques were found to be signed by anyone other than the director, then the compliance test suggests that there are weaknesses in the internal control and it does not work as expected, therefore reliance cannot be placed on the control.

    Transaction tests are undertaken to confirm the following:
    • Transactions and events have been recorded and have OCCURRED
    • Transactions and events that should have been recorded have been recorded and are therefore COMPLETE
    • Amounts and other data relating to recorded transactions and events have been recorded with ACCURACY
    • Transactions and events have been recorded in the correct accounting period therefore correct CUT OFF
    • Transactions and events have been recorded in the proper accounts thus correct CLASSIFICATION

    The words in CAPITALS relate to the 'assertions' that transactions in the sample under audit should cover. So when you are doing transaction testing (as in your example cited in your thread) you are checking a sample of transactions right from the start of their lives. For example in a sales sample you would start right from the initial customer order right through to the eventual destination in the financial statements.

    Kind regards
  • slmorris59
    slmorris59 Registered Posts: 2 New contributor 🐸
    Audit Simulation


    How did you find your audit simulation please. I am due to be taking it in early January 2009. Our college is Project based and all I have access to is the practice simulation on the AAT website and the text book. Please could you tell me where I can get any more information.

    Thank you

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