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test of control

Akshat Kumawat (51 Points)

23 April 2019

what is test of control please tell me with example......

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Sasa Djuras (2 Points)
Replied 27 April 2019

First of all you need to understand why you do ToC, if company have internal controls it decrease your total audit risk. You first need to check are there controls in company, like that someone check bookeeping of invoices, that someone check procurement for example and put signature on invoice (for example on invoice you have signatures of person that is received material and another signature of control that someone is checked person who received material and put signature to confirm that). All this can be of course managed in accounting system, than you need to check if that system is ok...When you confirm that there is a controls in companies you do ToC. With that test you check their controls, for example company received material and on invoice is signature of person that is received material and another that is controled that person that is received material. You choose number of invoices that you will test and than you look are there on all of them signatures of persons mentioned before. This is ofr example of procurment, you have also sales. You check invoices that goes to buyers and that is toc sales. You can use toc to confirm various balance sheet accounts, and income statement.

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kajol (Executive) (201 Points)
Replied 29 April 2019

A test of controls is an audit procedure to test the effectiveness of a control used by a client entity to prevent or detect material misstatements. Depending on the results of this test, auditors may choose to rely upon a client's system of controls as part of their auditing activities. However, if the test reveals that controls are weak, the auditors will enhance their use of substantive testing , which usually increases the cost of an audit. The following are general classifications of tests of controls:

Reperformance. Auditors may initiate a new transaction, to see which controls are used by the client and the effectiveness of those controls.
Observation. Auditors may observe a business process in action, and in particular the control elements of the process.
Inspection. Auditors may examine business documents for approval signatures, stamps, or review check marks, which indicate that controls have been performed.