What does tests of controls mean on the CPA exam?
Tests of controls. Procedures that check whether a control actually operated as described throughout the period. They support relying on the control; they do not by themselves test the balance the control protects.
Defined against AU-C 330.08.
Which CPA exam sections use tests of controls?
Tests of controls appears in 6 CPA exam sections: AUD, BAR, FAR, ISC, REG, TCP.
What is the difference between tests of controls and substantive procedures?
A test of controls asks whether a control operated effectively. A substantive procedure asks whether the amount is correct. Testing controls is optional unless substantive procedures alone cannot provide sufficient appropriate evidence, and it is only worth doing when the auditor intends to rely on the control. (AU-C 330)
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.
- operating effectiveness: Whether a control actually worked across the period, as opposed to whether it was well designed.
- 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 details: Substantive procedures aimed at individual transactions, balances or disclosures, rather than at the relationships between numbers that analytical procedures examine.
Other names for tests of controls
test of controls
Related terms
- suitably designed: The controls, if they operated as described, would achieve the stated objective.
- application controls: Controls built into one business process or system, such as a validity check on an input field or a three-way match.
- Type 1 subsequent event: A recognized subsequent event: it gives evidence about a condition that already existed at the balance sheet date, so the statements are adjusted.
- SOC 1 Type 1 report: A report on the fairness of the description and the suitability of the design of controls, at a point in time.
- variable interest entity: An entity that cannot fund itself without further support, or whose equity holders lack the usual powers.
- average total assets: The average of opening and closing total assets, used wherever a period flow like sales is compared to a balance.