control risk and substantive procedures, im thoroughly confused :(

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control risk and substantive procedures, im thoroughly confused :(

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Started 6 months ago by goodluck2everyone
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goodluck2everyone

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I'm getting a little confused about this

if control risk is high, we would not do test of controls and instead focus on substantive procedures. There are two types of substantive procedures: test of details and analytical procedures. Now which of these two would I use if control risk is high? The becker book says that to use test of details, I must be satisfied with internal control.

Im thoroughly confused by this, can someone clarify?

BEC- 80
REG- 68, 71 (wtf...)
AUD- 61 , 84
FAR- -- May 30
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Posted 6 months ago #
Yvonne570

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Okay, if controls are good, then the auditor does not have to do as much work. That's the whole idea. If there is a risk involved, such as an override of management controls detected, then they have to increase the audit substantive procedures.

So increase in control risk = decreased detection risk = more audit work.

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

Posted 6 months ago #
goodluck2everyone

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I get that but would they use test of details or analytical procedures? Which one is more detailed and thus used more if control risk is high?

BEC- 80
REG- 68, 71 (wtf...)
AUD- 61 , 84
FAR- -- May 30

Posted 6 months ago #
Yvonne570

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Test of details is the substantive procedures that are used when controls can not be relied upon.

Test of controls is the procedure used when controls are sound.

Analytical procedures are only ratios used to assist the auditor in finding irregularities in accounts. Not required during this process - only in planning and final review.

So the test of details is more work that hopefully the auditor can avoid - hopefully low control risk. LOL.

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

Posted 6 months ago #
jenuno01

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I would say you use Test of details = $ balance testing. Think about it, if you are concerned that a control is weak, the amounts in the accounts may be misstated... so why would you want to do analytical procedures (trend analysis, ratios) on data that may be incorrect? Instead you would want to do test of details to ensure the balance on the accounts are correct. Does this help?

FAR - Done | AUD - Done | BEC - Done | REG - ?

Posted 6 months ago #
Yvonne570

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Analytical procedures would be more helpful when controls are weak. For example, you have to dive into test of details so you will have to plan the best areas. Analytical ratio from the bigger picture can show the auditor the more risky areas to delve into for substantive procedures. Certainly not required; however, it's strongly advised.

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

Posted 6 months ago #
goodluck2everyone

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see now I'm confused again. Yvonne is saying that analytical procedures would be helpful if controls are weak but then jenuno is saying that analytical procedures would be useless if controls are weak because the ratios would all be incorrect anyways

bahhhhhhhhhhhhhhhhhhh

BEC- 80
REG- 68, 71 (wtf...)
AUD- 61 , 84
FAR- -- May 30

Posted 6 months ago #
Yvonne570

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It's a judgement call. Audit has no set rules but they do require this as part of planning and final review. It's just try to look at 100 different accounts in which was determined that controls cannot be relied upon. I.e, not adequate or management can bypass them.

Then what's next? Could take months and a lot of time to do detail testing on all 100 accounts some of which could have 1000s and 1000s of transactions.

Analytical procedures could help. They could tell you if AR increased but sales decreased. There's a red flag. That's analytical. Like a overall investigative work before you go in and start fully testing.

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

Posted 6 months ago #
goodluck2everyone

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thank you :)

BEC- 80
REG- 68, 71 (wtf...)
AUD- 61 , 84
FAR- -- May 30

Posted 6 months ago #

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control risk and substantive procedures, im thoroughly confused :(

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