Page 85 - CA Inter Audit PARAM

CA Ravi Taori

➢ F - The Frequency of the performance of the control by the entity during the period. (Stock count
is weekly Vs Fixed asset count is half yearly)
➢ L - The Length of time during the audit period that the auditor is relying on the operating
effectiveness of the control. (More time more checking)
➢ E - The Expected rate of deviation from a control. (If expected rate is very close to tolerable rate
of deviation then we have to check more of that control, to extra sure)
➢ R - The Relevance and reliability of the audit evidence to be obtained regarding the operating
effectiveness of the control at the assertion level. (Double payment is big risk so software feature
to detect same number of PO is relevant, so check more)
➢ T -The extent to which audit evidence is obtained from Tests of other controls related to the
assertion. (If other controls on that assertion are not effective do more checking here)
Author’s Note
• Shortcut to remember
FLERT

Tests of Control- Definition – Old Course - (P16M/N17R/M19E)
QNO
How to check
330.07
Bhaskar CNO SA330.040
Why Test of Controls are performed? Also explain what it includes.
Answer ➢ Tests of Control:
➢ Tests of control are performed to obtain audit evidence about the effectiveness of the –
• design of the accounting and internal control systems, that is, whether they are suitably
designed to prevent or detect and correct material misstatements; and
• operation of the internal controls throughout the period.
➢ Tests of control include tests of elements of the control environment where strengths in the
control environment are used by auditors to reduce control risk.

➢ Tests of control may include:
• Inspection of documents supporting transactions and other events to gain audit
evidence that internal controls have operated properly, for example, verifying that a
transaction has been authorised.
• Inquiries about, and observation of, internal controls which leave no audit trail, for
example, determining who actually performs each function and not merely who is
supposed to perform it.
• Re-performance of internal controls, for example, reconciliation of bank accounts, to
ensure they were correctly performed by the entity.
• Testing of internal control operating on specific computerised applications or over the
overall information technology function, for example, access or program change
controls.

QNO-- Test of Control For Debtors New Course – (M24M)
330.07.50 Bhaskar CNO – Unique

It is important to carry out the Tests of Controls for checking effectiveness of internal control over sales as a
part of the debtors’ audit procedure. In above context, state the points which need to be considered in
respect of trade receivables.
Answer It is important to carry out Tests of Controls for checking the effectiveness of internal control over sales as a
part of the debtors’ audit procedure. The following points need to be considered in respect of trade
receivables:
• Only bona fide sales lead to trade receivables.
• All such sales are made to approved customers.
• All such sales are properly recorded in the books of accounts.
• Once recorded, the debtors can be settled only by receipt of cash or on the authority of a responsible
official.

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