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ACCA Applied Skills · Audit and Assurance

Tests of Controls in ACCA Audit and Assurance

Tests of controls are audit procedures that check whether a client's internal controls operated effectively during the period. You identify the control, decide what could go wrong, pick a procedure such as inspection, observation, re-performance or enquiry, then judge the results. Good results allow less substantive testing. Poor results mean more.

What this chapter covers

This chapter covers how auditors gather evidence that controls worked throughout the period. It follows on from your work on internal control and risk assessment. There you learn what controls a client has. Here you learn how to test whether they actually operated.

You study four things: why auditors test controls, how control objectives link to testing methods, how to test the main business cycles (sales, purchases and payroll), and what to do with the results. The last point matters most for the audit approach. Reliable controls let you reduce substantive procedures. Unreliable controls force you to extend them.

The chapter links forward to audit evidence, sampling, substantive procedures and reporting. It also links back to the audit risk model. In AA, Section A consists of three 10-mark OT cases, and controls can be tested there. They can also be tested in Section B constructed-response questions, where you may have to recommend tests, explain deficiencies or suggest changes to the audit approach.

Controls are a regular exam theme, and the skills carry across the whole paper. In objective questions, you must match a control to the right test and tell tests of controls from substantive procedures. Objective test questions are all or nothing, so precision pays. In written questions, you need to name specific procedures tied to a scenario, not generic ones. The same thinking also supports questions on deficiencies, audit risk and the overall audit strategy. A student who handles this chapter well gains marks in several other areas.

Tests of controls: topics in the order to study them

  1. 1Purpose of Tests of ControlsStart here to learn what the tests are for and how they differ from substantive procedures, because every later topic depends on that line.
  2. 2Control Objectives and Testing MethodsNext, learn how to turn a control into a test using inspection, observation, re-performance and enquiry, which you will apply in every cycle.
  3. 3Tests of Controls for Sales, Purchases and Payroll CyclesOnly after the methods are clear can you apply them to the cycles, where exam scenarios usually sit.
  4. 4Evaluating Results and Impact on the Audit ApproachFinish with what the results mean, because you need to know the tests before you can judge their outcome and adjust the audit plan.

How to prepare Tests of controls

Aim to learn the logic first, then practise applying it to scenarios. Memorised lists of tests fail when the exam scenario is unfamiliar.

  1. Write one sentence that separates a test of control from a substantive procedure. Check every example you meet against it.
  2. Learn the four main methods: enquiry, observation, inspection and re-performance. Note which gives stronger evidence. Observation shows a control only at one moment.
  3. For each cycle, list the key risks first, such as unauthorised orders, unrecorded sales or fictitious employees. Then write the control that addresses each risk.
  4. For each control, write the test you would perform. Make it specific, for example inspecting purchase orders for evidence of approval.
  5. Practise objective questions that ask you to match a control to a test or a deficiency to its effect. Then explain why each wrong option fails.
  6. Write timed answers on results. State the conclusion, the effect on substantive testing and any deficiencies to report to management.

Common mistakes in Tests of controls

  • Suggesting substantive procedures when the question asks for tests of controls.

    Fix: Ask whether your procedure tests how a control operated or tests a balance or transaction. Only the first is a test of controls.

  • Giving a control instead of a test.

    Fix: Begin each point with an auditor verb such as inspect, observe, re-perform or enquire.

  • Writing vague tests such as 'check the purchases system'.

    Fix: Name the document, the evidence you look for and the risk it addresses.

  • Relying on enquiry as sufficient evidence.

    Fix: Pair enquiry with inspection, observation or re-performance to corroborate it.

  • Failing to say how results change the audit approach.

    Fix: Always add the consequence: more substantive testing, a different sample size or a report to management.

  • Treating a missed control as proof of misstatement.

    Fix: A deficiency raises risk and limits reliance. It does not prove an error. Say you will extend substantive work.

Last-day revision: Tests of controls

  • Tests of controls check that controls operated effectively during the period.
  • Substantive procedures check the figures and disclosures themselves.
  • Control testing is needed when you plan to rely on controls, or when substantive procedures alone cannot give enough evidence.
  • Main methods: enquiry, observation, inspection, re-performance.
  • Enquiry alone is weak evidence and needs support from other methods.
  • Observation only proves the control worked at the time you watched.
  • Test controls for the full period, or consider extra evidence for any gap.
  • Sales: test authorisation of credit, matching of goods despatched notes to invoices and sequence checks.
  • Purchases: test approval of orders, matching of orders, goods received notes and invoices, and authorisation of payment.
  • Payroll: test starter and leaver authorisation, overtime approval and reviews of payroll changes.
  • Effective controls allow less substantive testing. Ineffective controls need more.
  • Report significant deficiencies to those charged with governance, with recommendations.

Tests of controls in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tests of controls: frequently asked questions

What is the difference between tests of controls and substantive procedures?

Tests of controls check whether the client's controls operated effectively. Substantive procedures check the accuracy of transactions, balances and disclosures. Both give evidence, but they answer different questions.

When must an auditor perform tests of controls?

When the auditor plans to rely on controls to reduce substantive testing. They are also needed where substantive procedures alone cannot give sufficient appropriate evidence, for example with highly automated processing.

Which testing method gives the strongest evidence?

Re-performance and inspection generally give stronger evidence than enquiry. Observation is useful but shows the control only at the time you watch. Combining methods gives the best assurance.

How do tests of controls appear in the AA exam?

They appear in objective questions, where you match controls to tests or judge the effect of a deficiency. They also appear in written questions, where you recommend specific tests or explain how results change the audit approach.