Sorry! Another Audit question

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I know that control testing tests the robustness of internal controls within a system that then decide the level of subtantive testing required. i.e good controls mean less risk and less tesing and vice versa. What I cant get my head around is what tests are control tests and what's a substantive test. The examples given look very similar to me !! Please Please Please help......

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Sorry! Another Audit question

    I'm not doing this unit yet but, I work in audit and I reckon...<BR><BR>Control Testing relates to the procedures in use - how robust are the controls for the eg. Petty Cash system. Do the controls provide a satisfactory approach to handling cash/ safety of staff etc...<BR><BR>Substantive testing relates to activity that has occured within the eg. Petty Cash system. Check historical records for monies that have gone missing, check for any irregularities in general.<BR><BR>1 tests the procedures in use - are they adequate<BR>1 tests the historical activity of the eg cashier/ petty cash clerk etc...<BR><BR>Hope that helps<BR>Pete.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Sorry! Another Audit question

    I'm not an authority on audit and really don't like the subject but have just sat the devolved so know what you are going through. I couldn't get my head round most of the unit so found acronyms helped me to remember basic things - they don't mean anything or make sense but they did help - had 6 in all and the first thing I did when I sat down was write them down.<BR><BR>Tests of control - 2 main objectives <BR>Design - Is there a control in place and is the design effective in prevention, detection and correction of errors to avoid material misstatement.<BR>Operation - is the system in place being complied with.<BR>Sufficient appropriate evidence - try to remember NAMES<BR>Nature of accounting system and controls<BR>Assessment of risk<BR>Materiality<BR>Experience gained from previous audits<BR>Source and reliability of evidence<BR><BR>For substantive testing the main objective is to test for Validity, Accuracy and Completeness to ensure no under/overstatement - financial statement assertions - try to remember MOVECOP<BR>Measurement - has the correct amount been recorded in the correct period (cut off for year end)<BR>Occurrrence - has an event occurred that relates directly to the entity<BR>Valuation - is the valuation fair<BR>Existence - does an asset exist - physical inspection<BR>Completeness - has the transaction been entered in its entirety in ledgers as well as fixed asset register and all relevant depreciation applied.<BR>Ownership (Rights and Obligations) - has the entity's ownership been established<BR>Presentation and disclosure - do the accounts comply with legislation and standards.<BR><BR>I also found OIACER to be useful when considering obtaining sufficient appropriate audit evidence.<BR>Observation<BR>Inspection<BR>Analytical procedures<BR>Computation<BR>Enquiry & confirmation<BR>Reperformance.<BR><BR>As I say the words themselves don't make any sense but they do prompt the bits that do make sense. My friend thought I was mad but then used a couple to help her remember. ICIPOP and PIMS also came in useful.<BR><BR>Hope this helps a bit.<BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Sorry! Another Audit question

    Hi. I know what you mean, these can be tricky areas.<BR><BR>Tests of controls are basically testing the controls an organsation has in place for example, purchasing. Auditors will test the controls they have to purchase goods, i.e. who places the order, who authorises the order, who accepts the order, and who passes the purchase invoice for payment. Control testing is all about reviewing the organisations procedures. Substantive testing is when the auditor "ticks and flicks". The Auditor will check that the internal controls (control testing) is adequate. Then they will check these work. Example - if they are auditing a retail trade they will check the till reading to the daily cash sheet, the cash sheet to the cash book, cash book to the nominal ledger, nominal ledger to the bank statement etc. etc. This is the substantive testing. To test the controls the Auditor will do "walk through" tests to check that the internal controls actually exist. The stronger the controls the less substantive testing the auditor has to do.<BR><BR>Hope this helps

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