Between preparing a description of controls and performing tests of controls. Which of these two steps should be performed first?
When analyzing cash, the first step would be preparing the description of the controls. Whittington and Pany (2008) argue that the preparation may include questioning owners and employees with reliance on first-hand observation in a small business. The step allows the information processing and an explanation of how cash was calculated periodically. It is only through preparation that cash is substantiated based on the client’s cash account.
Delegate your assignment to our experts and they will do the rest.
The second step is performing tests of controls to determine whether I can rely on the test controls or not. If an auditor can depend on the test controls, it is possible to determine the cash balance's accuracy. For instance, by testing the cash balance after a specific transaction in the organization, an auditor can analyze the sample to conclude whether the control was correctly applied or not. “The tests control could include testing the accounting records and reconciliations by performance and comparing the details of a sample of cash receipts listings” (Whittington & Pany, 2008). During the process, an auditor can rely on inquiry and observation to determine the relevance of control elements. Correctly applied tests of controls result in reliable outcomes to support risk assessment.
What is the purpose of tests of controls?
The purpose of test control is to detect risks of material misstatements to reduce audit procedures and obtain additional evidence. Auditors can assess whether the control risk is low and perform tests that support their assessment with reliance on test control. At the assertion level, it is essential to perform tests that help to obtain additional audit evidence. Ideally, in the audit of financial statements, procedures might not provide substantive audit evidence for financial information accuracy. Younas and Kassim (2019) suggest that the controls for testing are designed and operated effectively over the period of reliance. The test controls ensure elaborate whether the financial reporting is valid or not over a short period. Appropriateness of audit evidence is dependent on the effectiveness of test controls, which are essential to audit and organization decisions.
References
Whittington, R., & Pany, K. (2008). Cash and financial investments. Principles of auditing & other assurance services . (21st Ed). Boston: McGraw-Hill/Irwin.
Younas, A., & Kassim, A. (2019). Essentiality of internal control in the Audit process. International Journal of Business and Applied Social Science . 1-6.