Page 12 - eBook Audit Of Financial Statement Components

1.2 PERFORMING FURTHER AUDIT PROCEDURES

This section discusses tests of controls and substantive

procedures for sales and receivables. The tests of controls should

be performed prior to the substantive tests.

However, if the controls over sales and receivables are not well

implemented or ineffective, the substantive procedures should

be done after the auditor obtains an understanding of internal
controls. Certain tests of controls are performed during an

understanding of internal controls.

1.2.1 TEST OF CONTROL FOR REVENUE
The tests of
controls Tests of controls are designed to obtain sufficient evidence to
should be
performed determine whether controls over sales and receivables are
prior to the functioning effectively. The tests of controls involve testing of
substantive
tests. design effectiveness and operating effectiveness.

Tests of
controls are i. Test of Design Effectiveness
designed to
obtain Auditors use the understanding of the information systems and
sufficient
evidence to internal control systems specific to the client to determine the
determine presence of essential controls over sales and receivables. Once
whether
controls over the auditor identifies the presence and absence of the necessary
sales and
receivables controls, the auditor makes a preliminary assessment of control
are risk.
functioning

effectively.
ii. Test of Operating Effectiveness

Next, the auditor should perform a test of operating effectiveness

of controls, which involves a variety of procedures. The auditor

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