1.4 - Tests of Control or Tests of Detail

Question 1

What does ISA (UK) 315 require auditors to do?

Answer 1

Assess the risks of material misstatement

Question 2

What does ISA (UK) 330 require auditors to do?

Answer 2

Respond to the risks of misstatement that they have found, ie, to determine how to they are going to obtain evidence about the risk of misstatements

Question 3

The auditor must choose which kind of procedures to perform. What will these be in most cases?

Answer 3

A mixture of tests of control and substantive procedures

Question 4

What must the auditor always perform?

Answer 4

Perform some substantive procedures, no matter how reliable an entity’s internal controls are

Question 5

What does carrying out substantive procedures mean?

Answer 5

The auditors must carry out tests to reduce the risk of there being a material misstatement that they do not know about, and the audit opinion therefore being incorrect

Question 6

What tests will the auditors carry out?

Answer 6

That is largely a matter of judgement for the auditors and depends on the nature of the risk

Question 7

What happens when the auditor believes controls are operating effectively?

Answer 7

The auditor shall perform tests of controls to obtain sufficient appropriate audit evidence that the controls were operating effectively at relevant times during the period under audit

Question 8

When it is also necessary to undertake tests of controls?

Answer 8

When it will not be possible to obtain sufficient appropriate audit evidence simply from substantive procedures e.g if entity conducts business using IT systems which do not produce documentation of transactions

Question 9

In carrying out tests of controls, what must auditors use?

Answer 9

Inquiry, as well as other procedures

Question 10

What will be some helpful procedures for the auditor when testing controls?

Answer 10

Reperformance and observation

Question 11

Some controls may have been tested in prior audits and the auditor may choose to rely on that evidence of their effectiveness. If that is the case, what must the auditor do?

Answer 11

The auditor must obtain evidence about any changes since the controls were lasted tested and must test the controls if they have changed

Question 12

In any case, how often should controls be tested for effectiveness?

Answer 12

At least once in every three audits

Question 13

When can the auditor not rely on testing carried out in prior years?

Answer 13

If the related risk has been designated a significant risk and needs to carry out testing in the current year