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Testing of controls (Types of controls (Manual control (purely manual such…
Testing of controls
Types of controls
Manual control
purely manual such as locked cage for inventory
Automated (application controls)
IT general controls (ITGCs)
program change controls (password), logical access controls - only authorised personel can change the tasks and function of programs
IT dependent manual controls
e.g. financial report that is stored on a computer is manually reviewed by management. Auditor needs to test both manual and IT controls
Techniques for testing controls
1. Enquiry
2. Observation
Auditor observes the actual control being performed
3. Inspection of physical evidence
4. Re-performance
Auditor re-performs the control to test its effectiveness
Prevent and detect controls
Prevent controls
Commonly Automated
e.g reject duplicate transactions
Detect Controls
identify and correct errors
usually not applied during the transaction
bank reconciliation tested against entity's records
Selecting and designing test of controls
1. Select controls that will provide most efficient and effective audit evidence
Test controls that are critical to audit opinion
Test controls that address multiple WCGWs
2. How much testing does the auditor need to do?
How often the control is used
persuasiveness of evidence of testing
existence of combination of controls
Relative importance of WCGWs
Attribute sampling
How often is the control used? Is it used enough to be effective?
Application controls
Is this control being used effectively?