(b) (ii) Use of tests of controls and substantive procedures
Tests of controls
Tests of control are designed to ensure that documented controls are operating effectively. If controls over the completeness of income were expected to operate correctly, then the auditor would test those controls.
In B-Star, while controls could be in operation, e.g. the account clerks agreeing physical cash to computer summaries, there is no indication that the control is documented; that is the computer summary is not signed to show the comparison has taken place. The auditor could use the test of inquiry – asking the clerks whether the control has been used, and observation – actually watching the clerks carry out the controls As noted above though, lack of documentation of the control does mean relying on tests of control for the assertion completeness of income has limited value.
Substantive procedures
Substantive procedures include analytical procedures and other procedures.
any trends or relationships that appear to be abnormal. These procedures can be used effectively in B-Star as an approximation of income that can be obtained from sources other than the cash receipt records.
Other procedures, or tests of detail, are normally used to verify statement of financial position assertions and include obtaining audit evidence relevant to specific assertions. However, they could be used in B-Star to trace individual transactions through the sales/cash systems to ensure all ticket sales have been recorded (completeness assertion). The use of other procedures will be time consuming.
use of other procedures will be time consuming.
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