Control tests are audit procedures taken to test how effective control measures are, in preventing or detecting statements that contain mistakes at applicable assertion level. Examples of audit procedures include, inquiries and inspection of records and duties. The purpose of test controls are based on expressing a position on how successful are internal controls over financial reporting (Sebastian, 2011, p. 8).
A number of businesses usually offer outside specialists to perform their audit work. It is therefore important that the outside specialist team is well examined, observe carefully their counting procedures, compute again calculations of the presented record and if suitable application of tests will be encouraged to intercede transactions (Bragg, 2012, p. 423). As a professional requirement. The independent auditor may decide to reduce the extent of work due to the services being offered by the outside specialists. However, the letting of an outside specialist team to count a company’s inventory, does not offer a satisfactory substitute for the auditor’s own observation.
Planned assessment of control risks is usually a procedure that puts in place to evaluate losses and come up with actions that will help reduce or eliminate threats discovered in the process. Risk control is, however a procedure that is applied by businesses with the intention to identify risks associated with the business and how to manage such risks to avoid them from taking place. Therefore, when a planned, assessed point of control threat is low, the level of what is expected from the sampling test is high. Meaning an auditor, allows for a low level of sampling risk at a certain percentage and a tolerable rate not exceeding the rate of the level of sampling risk. When the planned, assessed level of control risk is moderate, the auditor his time allows for higher levels of sampling risk and a tolerable rate not more that the level of the sampling risk, meaning the degree of the desired sample tests will be moderate or low. When the level of planned, assessed of control risk is at maximum, the test controls will not be suitable and the auditor, therefore, can perform any substantive tests (Harrell, 2006, p. 33.19).
The revised assessment of a risk is broadly divided into three stages, where in the first stage, there is need to identify, define and agree. In this stage, engaging the business stakeholders is the main agenda and the need to explain to the stakeholders the need or reasons to apply a certain procedure. In the second stage, it is more about evaluation, calculation and management. These processes begin after the stakeholders have agreed on the list of risk assessment methods, and calculation of the likelihood a risk is to occur is done and the consequences that are prone to such risks. This stage is concluded by comparing risk estimates where necessary, identifying and evaluating risk management strategies. On the final stage, it focuses on monitoring, comparing and validating. It is in this stage where the comparison of predictions of the risk assessment and reality is done. Monitoring is done to bring new evidence for analyzing and reducing the uncertainties identified in the previous stage (Kapuscinski, 2007, p. 14).
In completing the substantive procures, auditors are to assess from the evidence obtained, whether the sources used are sufficient and appropriate, where they will be able to adjust the audit plan to ensure that the evidence obtained is sufficient and appropriate. In the planned assessment of control risk, development is to create an understanding of the internal controls over fixed assets, while in the revised assessment of a risk, a plan is usually developed for testing the internal controls and perform the tests (Rittenberg, Johnstone and Gramling, 2012, p. 719).
Bragg, S. M. (2012). Practitioner’s guide to GAAS 2012: Covering all SASs, SSAEs, SSARSs, and interpretations. Hoboken: John Wiley & Sons.
Harrell, R. D., & CCH Incorporated. (2006). Local government and single audits / Rhett D. Harrell, ed. Chicago, Ill: CCH, Inc.
Kapuscinski, A. R. (2007). Environmental risk assessment of genetically modified organisms: Volume 3. Wallingford, Oxforshire, UK: CABI Pub.
Rittenberg, L. E., Johnstone, K. M., & Gramling, A. A. (2012). Auditing: A business risk approach. Melbourne, Vic.: South-Western Cengage Learning.
Sebastian, S. J. (2011). American Battle Monuments Commission: Financial Statements for Fiscal Years 2010 and 2009. Darby, PA: DIANE Publishing.