Question

Describe for each category below an example of a test of control you can execute to assess internal controls in the sales cycle. [4 points]

Method of testing internal control	Example of test of control for sales cycle
Inquiry
Inspecting documents
Observation
Re-performance

Answer 1

Test of controls is the type of audit manner that we carry out that allows you to evaluate whether the consumer’s inner manage works effectively in preventing or detecting dangers of cloth misstatements at the statement degree.While obtaining an information of the patron’s internal control, as auditors, we normally attempt to pick out the inner controls that could lessen the dangers of cloth misstatement. Then we perform the check of controls to gain evidence of how effectively the controls function in practice before we are able to depend upon them.

As a result, we can pick to rely upon the controls and decrease some of our substantive works if the customer’s controls paintings as meant after acquiring the end result of the test of controls.On the alternative hand, if the controls are vulnerable and not effective in stopping or detecting risks of fabric misstatements, the manage threat can be excessive. In this situation, we will need to increase our substantial assessments as a way to lessen the audit danger to a suitable level.

The following are trendy classifications of checks of controls:

Inquiry:

Simply, the auditor asks suitable management and body of workers about the controls in area on the service organisation to determine some relevant data. This approach is frequently used together with other, extra dependable strategies. For example, an auditor might also inquire of management if traffic to the statistics center are escorted at all times if the auditor isn't capable of study this interest while on web page. No manage objective or standards have to ever be supported through controls best tested through inquiry processes.

Inspecting documents:

Inspecting files and statistics is applicable when there's a transaction trail of performance in the form of signatures and validation stamps that suggest whether or not the manipulate changed into achieved and the person who achieved it.For instance, an auditor may additionally take a look at to make certain that backups are scheduled to run on a regular basis. He or she will take a look at to see if bureaucracy are being crammed out correctly. Examination of evidence additionally consists of the evaluate of written documentation and statistics that might include tourist logs, worker manuals and machine databases.

Observation:

Activities and operations are tested the use of observation. This approach is useful whilst there is no documentation of the operation of a manipulate, together with watching that a safety camera is in region or watching that a hearth suppression gadget is set up.Example: auditor observes the cashier perform sales transactions and notes that the cash sign in will not open except a sale has occurred.

Re-performance:

This method is used when the alternative 3 above techniques blended fail to provide sufficient warranty that a control is running correctly or this technique may be used to show by way of itself to illustrate that controls are running successfully. This method of trying out is the strongest kind of testing to reveal the operating effectiveness of a manage. Re-overall performance requires the auditor to manually execute the manage, along with re-acting a calculation that a machine robotically calculates.For example, as auditors, we may re-carry out the method of bank reconciliation that become completed by the purchaser’s accountant.