Question

Briefly discuss the purpose of each of the following. Give one brief example of each.:

a. Tests of controls

b. Analytical procedures

c. Tests of details of balances

Answer 1

A) Test of control:- Its an audit procedure to test that how capable are controls in preventing misstatements.

For example:- In the observation technique, the auditor observes the physical stock calculation method of the client and reconcile it with actual inventory.

B) Analytical procedures:- To evaluate the financial information by understanding some relationships in data.

Example:- Bad debt should vary with the sales amount. If sales increase, then they should ideally increase and vice versa. If it is not happening, then the auditor can become skeptical and raise with management.

C) Tests of details of balances:- It is done to ensure that the balances, disclosures or transaction of the client is correct or not. os one account in detail. For example, the auditor can check the bank balance in client books with balances as per the passbook and also determine that all entries relate to the client.

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