Management's testing 2316

  • I was recently reviewing some workpapers done by another department, and noted that the way they performed their testing is very similar to doing an audit of the numbers, rather than doing a test of the controls. The controls in question are more of the type of account analyses, making sure the right numbers are used for the calculation, etc. (as opposed to like a cut-off testing, in which case we will test the actual transactions to verify the control).
    I understand that, during a control testing, we cannot just rely on the sheer fact that someone signed off on something. To the extent possible, we also need to make a judgment on whether that person did an effective review – and usually we achieve that by tying and agreeing a few numbers.
    But in our case, it appears that they were only concentrating on the numbers. Do you think that will present a problem when the auditors review our workpapers?

  • Hi,
    The factors that may impact the ability of the auditor to depend on management’s testing include, repeatability of results, independence/objectivity, quality of the evidence examined, and importantly, whether the test of control directly addresses the control objective.
    For this reason, it may acceptable for management to conduct certain substantive tests such as agreeing the amounts in reconciliations, reperforming calculations, estimates, etc., for accuracy. However, if the test of control does not address the control objective, the auditor might place less reliance on the tests of control performed by management.
    It is important to use a combination of different audit procedures when management performs tests of controls. Generally, if management relies on one audit procedure (substantive testing) to test all controls, the auditor would probably request the performance of other audit procedures to obtain assurance and determine the reliance to be placed on the results of these controls tests.
    Additionally, some substantive tests of controls might be preferred in certain cycles (Financial Reporting, Treasury Cycle, etc.) in favor of attribute testing in other cycles such as Human Resources or the Legal Cycle. So the types of audit procedures performed may vary according to the cycle and the audit evidence available for examination.
    Hope this helps,

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