Unfortunately aaronmo is incorrect. Also, please note that revenue cycle is a terminology and we can not say that the ‘revenue cycle is working well'. We can say that the controls in the revenue cycle are operating effectively (i.e. working well). Also, it seems that you might not understand what ‘controls or internal controls' are. Examples of internal controls are having two signatories to sign cheques (i.e. reduces risk of someone cashing cheques to themselves), purchases over a certain amount require approval from head of purchases (i.e. stops employees purchasing anything they want).
All companies have transaction cycles. These include sales and receivables (i.e. revenue cycle), expenses and payables (i.e. expenditure cycle), payroll, inventory, treasury (i.e. financing cycle) and financial reporting. However, I'm not sure what the book exactly says.
When we perform test of controls, we generally do it by transaction cycle. As such, I will perform test of controls on the revenue cycle, expenditure cycle, etc. Each cycle will have many controls. Lets say that we want to test the controls in the expenditure cycle, some examples of the controls that may be in place include purchases over a certain amount require approval from head of purchases, purchases can only be made from approved supplier, etc, etc. We can test these controls by selecting a sample and looking if the head of purchases has signed approving the purchase, or by selecting a sample of suppliers and checking if they are genuine and have been approved as suppliers.
Substantive testing is when we test if the values reported in the financial statement are correct. Lets say the company has reported $1,000,000 revenue and $800,000 expenditure. Say we are currently performing substantive testing to prove that there was actually $800,000 of expenditure incurred during the year. We generally select a sample and review the purchase invoices to see actual expenditure has occurred, and that they haven't fictitiously recorded it. When they say test of transactions, this means testing transactions in the profit and loss statement. When they say test of balances, this means testing balances in the balance sheet.
Hopefully this helps some people out. Also would be good to get some feedback on whether my explanation makes sense to the people currently learning.
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