Which assertions and controls must be tested by the auditor

Perform interim tests if this fits better in your work schedule. Later, say in February , consider whether controls have changed during the last two months of the year. See if the same people are performing those controls. And consider performing additional tests for the November 1 to December 31 period. Once done, determine if the controls are effective. Testing on an interim date is not always the answer. For example, if management is inclined to manipulate earnings near year-end, then interim tests may not be appropriate.

If you choose to test after period-end, then do so for the full period being audited. Your sample should be representative of that timeframe. So should you ever test controls at a point in time and not over a period of time?

Yes, sometimes. For example, test inventory count controls at year-end only. Well those controls are only relevant to the year-end count, a point in time. Most controls, however, are in use throughout the period you are auditing.

Therefore, you need to test those controls over that period of time e. As I said above, many auditors tend to rely fully on substantive responses to the risks of material misstatement. But, in some cases, that may not be the best or wisest approach. If controls are designed well and functioning, why not test them? Especially if it takes less time than substantive procedures.

Finally, take a look at my two related articles regarding responses to the risk of material misstatement: 1 Test of Details: Substantive Procedures and 2 Substantive Analytical Procedures: Power Up. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses.

He frequently speaks at continuing education events. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues. Yes, walkthroughs are a part of your risk assessment. This helps you identify your risks before planning the audit. That information will provide you with the basis for your responses. Responses include testing controls for effectiveness, substantive analytics, and test of detail.

Would the 3 yr. Also, what are your recommendations as to what should be the basis for developing a rotational cycle for control testing by SLOD for rotation cycle? This is year one of implementing a formal ERA and looking for insights to developing testing schedule i.

TOD is complete. Thank you! Rebecca, the three year cycle relates to test of controls alone. Not sure about tests outside of financial statement audits. The three year cycle comes from U. Audit standards. Please log in again. The login page will open in a new tab. After logging in you can close it and return to this page. Once risk assessment is complete, auditors have three further audit procedures they can use to respond to identified risks: Test of details Substantive analytics Test of controls This article focuses on the third option.

Not Testing Controls Many auditors assess control risk at high after risk assessment is complete and use a fully substantive approach. June 16, at pm. Charles Hall says:. July 21, at pm. September 27, at pm. October 19, at pm. Contact sales. Skip to content Open site navigation sidebar. Why GoCardless? For use case Subscription payments Recurring payments built for subscriptions Invoice payments Collect invoice payments automatically. Our customers Case studies Our customers successes Customers love us Hear from our customers Customer success Our customer first approach Customer Hub Training resources, documentation, and more.

For enterprise Overview Reduce churn Reduce international barriers Reduce operational costs Reduce time to get paid Reduce conversion risk. For small business Overview Improve your cashflow Keep track of payments Reduce costs Reduce failed payments Increase conversions. Breadcrumb Resources Accountants. Table of contents. What are tests of internal controls? Tests of control vs. Purposes of tests of control There are several reasons to perform tests of control in auditing.

Audit sampling methods for tests of controls Tests of control fall into four main categories: Inquiry: At the first stage, auditors may ask clients to explain their control processes. We can help GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices.

Related topics Accountants. Recommended for you. Interested in automating the way you get paid? An alternative way of putting this is that sales are genuine and are not overstated.

Relevant test — select a sample of entries from the sales account in the general ledger and trace to the appropriate sales invoice and supporting goods dispatched notes and customer orders. Completeness — this means that transactions that should have been recorded and disclosed have not been omitted.

Relevant test — select a sample of customer orders and check to dispatch notes and sales invoices and the posting to the sales account in the general ledger. Note the difference in the direction of the above test. In order to test completeness, the procedure should start from the underlying documents and check to the entries in the relevant ledger to ensure none have been missed.

To test for occurrence the procedures will go the other way and start with the entry in the ledger and check back to the supporting documentation to ensure the transaction actually happened. Accuracy — this means that there have been no errors while preparing documents or in posting transactions to ledgers. The reference to disclosures being appropriately measured and described means that the figures and explanations are not misstated.

Relevant test — reperformance of calculations on invoices, payroll, etc, and the review of control account reconciliations are designed to provide assurance about accuracy. Cut—off — that transactions are recorded in the correct accounting period. Relevant test — recording last goods received notes and dispatch notes at the inventory count and tracing to purchase and sales invoices to ensure that goods received before the year end are recorded in purchases at the year end and that goods dispatched are recorded in sales.

Classification — that transactions are recorded in the appropriate accounts — for example, the purchase of raw materials has not been posted to repairs and maintenance. Relevant test — check purchase invoices postings to general ledger accounts. Presentation — this means that the descriptions and disclosures of transactions are relevant and easy to understand.

There is a reference to transactions being appropriately aggregated or disaggregated. Aggregation is the adding together of individual items. Disaggregation is the separation of an item, or an aggregated group of items, into component parts.

The notes to the financial statements are often used to disaggregate totals shown in the statement of profit or loss. Materiality needs to be considered when judgements are made about the level of aggregation and disaggregation.

Relevant test — confirm that the total employee benefits expense is analysed in the notes to the financial statements under separate headings— ie wages and salaries, pension costs, social security contributions and taxes, etc.

Existence — means that assets and liabilities really do exist and there has been no overstatement — for example, by the inclusion of fictitious receivables or inventory. This assertion is very closely related to the occurrence assertion for transactions. Relevant tests — physical verification of non—current assets, circularisation of receivables, payables and the bank letter.

Rights and obligations — means that the entity has a legal title or controls the rights to an asset or has an obligation to repay a liability. Relevant tests — in the case of property, deeds of title can be reviewed. Current assets are often agreed to purchase invoices although these are primarily used to confirm cost. Long term liabilities such as loans can be agreed to the relevant loan agreement. Completeness — that there are no omissions and assets and liabilities that should be recorded and disclosed have been.