[happygal]

My review materials say that while Substantive Testing is used in every audit, tests of controls is not. Can someone please explain that, and in what situations would tests of controls be used? Thanks!

[Biff-1955-Tannen]

Tests of controls will be used if the auditor assesses the control risk below maximum. They do tests of controls to be able to justify their assessment of control risk below the maximum.
If the auditor assesses control risk at the maximum, there is no need to test the controls. There is no need to test the controls because the auditor believes that the controls are so deficient that it is pointless to test them. Testing them will not result in a reduction in control risk, they are so deficient.

Substantive testing will always be done in an audit, because…. well that is pretty much the audit. Analytical procedures and tests of details are substantive testing. If you don't do substantive testing, you've effectively done absolutely nothing during the audit.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[c1oth]

The person above said it more clearly than I probably can but I will try, and someone can clarify what I type if its worth it.

Test of controls , you go into the company and look at how management is controlling and attempting to prevent misstatements. Usually you go in and Reperform, Inspect, Inquire, and Observe whats going on.

If you realize management control is terrible, the cost of running “test of controls” would be pointless, waste of money/time.

So then you perform what they call substantive tests and analytical procedures, which is the more in-debt audit work I think. This is wear you are testing transactions, accounts, presentation disclosures.

[happygal]

thanks for the explanations, what would be the order then of determining what to do first, would we first start with substantive testing (tests of details and analytical procedures) and then see if we further need test of controls?

[Biff-1955-Tannen]

When you start an engagement you will gain an understand of the business, including their controls. You will look at the design of the controls first and then do tests of controls as needed. After this is done you will be able to plan your substantive procedures accordingly.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[win2bet]

is it possible to determine controls are effective with ONLY substantive procedures alone?

REG 68,87
BEC 85
FAR 75
AUD 64,64, 86!

[Biff-1955-Tannen]

A dual purpose test will be a test of controls and a test of detail which will be able to test the effectiveness of a control as well as being a substantive procedure. This can be done after the auditor has already assessed the control risk as low. So it is KIND of like only doing a substantive test. But you would still need to evaluate the control design first and assess control risk before you do this.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[happygal]

Thanks Biff-1955-Tannen,
I also found this for anyone who may need a little extra help, https://www.youtube.com/watch?v=dBPp6c2pTfw

[Author]

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