Audit help!

axl2derv

Hi,

Can anybody please define the difference between a test of controls and a substantive test?

Also, what procedures you would use to test stock and the purpose of the testing?

Thanks

Carl

Gem7321

Tests of control test that the controls are in place and working effectively.

Substantive tests test transactions and detailed activity and you can use analytical review tests.

Normally the purpose of testing stock is to determine that stock is being valued correctly and to test existence.

There are so many tests you can do on stock, some of them are:
Check that stock is counted correctly and reliably (by attending a stock take) and whether any differences are investigated.
Check that stock is valued at lower of cost and net realisable value by taking a sample from the nominal ledger and comparing to purchase invoices and the clients selling figures.
Compare monthly stock levels to the corresponding month in the previous year.
Note any slow-moving items to query with the client.
Etc. etc.

I take it you're doing your audit sim soon? If so good luck!

axl2derv

Thanks.

Did my sim today and I am pretty happy with my answers.