Page 27 - eBook Audit Of Financial Statement Components

(b) Tests for operating effectiveness

Testing the operating effectiveness of controls over

purchases and payables involve a variety of procedures.
Auditors may obtain substantive evidence whilst testing the

operating effectiveness of the controls, which are known as

dual purpose tests.

However, auditors should cautiously draw conclusions
because tests of controls are only concerned about the

number of misstatements, not the size. The size of

misstatements is assessed using substantive tests, of which
the misstatements are considered to be significant when

they are material.

Tests for operating effectiveness are performed to obtain

sufficient evidence about each assertion, such as the
The tests of existence, occurrence, occurrence, completeness, accuracy,
controls
should be cut-off and classification of purchases and payables
performed transactions and balances.
prior to the
substantive
tests. Key Control Audit Procedures Audit
Features Assertions
Tests for
operating 3. Requisition - Ascertain system for requisition for Existence
effectiveness purchases and service required Occurrence
are performed - Check for approval for requisition of
to obtain purchases and service required
sufficient 4. Purchase - Check approvals for issue of purchase Existence
evidence Orders orders and the authorization limits Occurrence
about each - Check purchase orders to requisition
assertion. forms
- Vouch to quotations from supplier
- Obtain list of normal suppliers, where
available
- Check terms and condition for purchases

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