What does operating effectiveness mean on the CPA exam?
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Operating effectiveness. Whether a control actually worked across the period, as opposed to whether it was well designed. A control can be perfectly designed and simply never performed.
Defined against AU-C 330.08.
Which CPA exam sections use operating effectiveness?
Operating effectiveness appears in the AUD section of the CPA exam.
Other terms defined against AU-C 330
- dual-purpose test: One procedure that tests a control and substantively tests the transaction at the same time, on the same sample.
- further audit procedures: The work done in response to assessed risk: tests of controls and substantive procedures.
- nature, timing, and extent: The three dials on any audit procedure: what kind of test, when it is run, and how much of the population it covers.
- selecting specific items: Choosing particular items to examine because of what they are, such as large or unusual ones, rather than at random.
- substantive procedures: Work aimed directly at detecting misstatement in a balance or disclosure, as opposed to testing whether a control operated.
- tests of controls: Procedures that check whether a control actually operated as described throughout the period.
- tests of details: Substantive procedures aimed at individual transactions, balances or disclosures, rather than at the relationships between numbers that analytical procedures examine.
Related terms
- suitably designed: The controls, if they operated as described, would achieve the stated objective.
- SOC 1 Type 2 report: A report covering the description, the suitability of design, and the operating effectiveness of controls over a period.
- risk assessment procedures: The audit procedures designed and performed to identify and assess the risks of material misstatement at the financial statement and assertion levels.
- penetration test: An authorized simulated attack that tries to actually exploit weaknesses, as opposed to a vulnerability scan, which only lists what might be exploitable.
- internal control over financial reporting: A process designed to provide reasonable assurance regarding the preparation of reliable financial statements.
- management override: Management using its authority to bypass controls that otherwise work.