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Evidence
3.2 Tests of control
The stronger the control system the lower the control risk and as a
result, there is a lower risk of material misstatement in the financial
statements.
In order to be able to rely on controls the auditor will need to:
ascertain how the system operates
document the system in audit working papers
test the operation of the system
assess the design and operating effectiveness of the control system
determine the impact on the audit approach for specific classes of transactions,
account balances and disclosures.
A test of control provides evidence of whether a control procedure has operated
effectively.
Example 2
Testing controls
Everest Co holds inventory which is stored in a temperature controlled
warehouse with the temperature being monitored every 3 hours and a record
of the temperature taken being maintained and checked by the warehouse
manager.
To test this control, the auditor can inspect the record of temperatures
recorded for a sample of days throughout the year. They should also inspect
the records for evidence of warehouse manager’s review such as a signature.
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