A four-step approach in testing controls in auditing
A four-step approach to testing controls in auditing:
We want to tell you the test of controls in the audit so that you can familiarize yourself with the steps.
The first stage of evaluating benefits and costs:
When the auditor believes that the employer’s controls are effective.
The first step is to assess the potential benefits of reliance.
The auditor should estimate the time required to achieve lower control risk and compare this to the time savings resulting from reducing substantive procedures.
The second step is to identify specific controls for testing:
Whenever the auditor considers it cost-effective to rely on controls according to his initial judgment.
It should identify specific controls for testing.
Ideally, the employer will have key controls that greatly reduce the likelihood of a material misstatement.
Not all controls are created equal.
Some of them are more important in combating significant distortions.
The auditor should focus on identifying these controls and determine how much they can be relied upon.
The third stage of selection and implementation of control tests:
Once the best controls for the test are identified.
The auditor should choose the most effective and efficient way to achieve trust.
There are four basic ways to test controls:
1- Inspection: Inspection is the re-execution of a control to ensure that the correct results are obtained.
2- Re-execution: Re-execution is the re-execution of a control to ensure that the correct results are obtained.
For example, the auditor re-executes a discrepancy to verify that it was performed correctly.
3-Inquiry: An inquiry is an interview with the employer’s employees to obtain evidence about the effectiveness of a control.
For example, auditors ask the chief accountant to explain the process of reviewing capital expenditures at the end of each month.
4-Observation: Observation is the objective observation of the running rejection control.
For example, let’s assume that the management group of the employer meets every month to check the accuracy of the financial statements.
The auditor can attend one or more of these meetings to see what the process is like.
Years ago, organizations relied heavily on audits and re-enactments to test controls.
The fourth stage of achieving results:
After completing the control tests, the auditor must draw a conclusion.
whether or not it should rely on controls and how much.
If the tests are properly designed and implemented.
Test results should confirm the initial assessment of control risk.