Tests of control are tests to obtain audit evidence about the effective operation of the accounting and internal control systems, that is, that properly designed controls identified in the preliminary assessment of control risk exist in fact and have operated effectively throughout the relevant period.
Types of Procurement Audit Tests
Substantive procedures are tests to obtain audit evidence to detect material misstatements in the financial statements. They are generally of two types:
• Analytical procedures
• Tests of detail of transactions, account balances and disclosures
The types of substantive tests carried out to obtain evidence about various financial statement assertions are outlined in the table below.
| Audit assertion | Type of assertion | Typical audit tests |
| Completeness | Classes of transactions
Account balances Presentation and |
(a) Review of post year- end items
(b) Cut-off testing |
| disclosure | (c) Analytical review
(d) Confirmations (e) Reconciliations to control accounts |
|
| Rights and Obligations | Account balances Presentation and disclosure | (a) Reviewing invoices for proof that item belongs to the
company (b) Confirmations with third parties |
| Valuation and Allocation | Account balances Presentation and disclosure | (a) Matching amounts to invoices
(b) Recalculation (c) Confirming accounting policy consistent and reasonable (d) Review of post year- end payments and invoices (e) Expert valuation |
| Existence | Account balances | (a) Physical verification
(b) Third party confirmations (c) Cut-off testing |
| Occurrence | Classes of transactions Presentation and disclosure | (a) Inspection of supporting documentation
(b) Confirmation from directors that transactions relate to business (c) Inspection of items purchased |
| Accuracy | Classes of transactions Presentation and disclosure | (a) Recalculation of correct amounts
(b) Third party confirmation (c) Analytical review |
Directional testing
A general assumption that audit firm have is that companies overstate assets and understate liabilities. It also has to do with double entry system e.g. creditors and purchases. If one is correct then most likely the other is correct also.
The techniques used are:
• Review payments after balance sheet date and matching them against related invoices specifically noting dates on invoices to ensure that the invoice was accounted for in the correct accounting period.
• Cut-off tests which involve selecting goods, received notes raised before the year-end and ensuring that the related invoices have been included in the purchases daybook before year-end as well as individual creditors’ accounts. If no invoices have been received to match those goods received notes than a reasonable liability should have been set up.
• Comparison of the present list of creditors with the previous year’s list and investigations being carried out on those creditors on the list of the previous year missing from current year’s list to confirm that they are properly excluded through settlement during the year under review.
• Reviewing reconciliation of creditors’ statements with the creditors’ individual ledger accounts ensuring that any reconciling items are valid and genuine.
• Reviewing lending contracts or agreements for breach of contract accusations to determine where claims would be made against the company.
• Reviewing correspondence with professional advisers e.g. lawyers for claims that they may have made against the company but not recorded.
