Question

Provide an example of a situation in which the performance of tests of controls for the internal control audit might affect the performance of substantive procedures in a financial statement audit.

Answer 1

Answer:

Test of control is an audit test to test the effectiveness of the client's internal control system.Test of control are performed to obtain evidence about the effectiveness of the:

• Design of the accounting and internal control system, that is whether they are suitably designed to prevent or detect and correct material misstatements and
• Operation on the internal controls throughout the period.

Whereas substantive audit procedure is an aduit test to test the reasonableness of item in the financial statements.

SItuations are as follows:

• If the audit control is effective, then the auditor will use more test of control and less substantive procedure.
• The auditor's assessement of risks of material misstatement at the assertion level includes an expectation that the controls are operating effectively (i.e. tge auditor intends to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedure or
• Substantive procedures alone cannot provide sufficient appropriate audit evidence at assertion level.

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