Can you tell your tests of controls from substantive tests?
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- čas přidán 5. 06. 2024
- #StudyAudit #AuditProcedures
One of the biggest mistakes I see in student exam papers is the inability to write an appropriate test of internal controls - here is how you distinguish between the two.
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TOCs = check if controls prevent or minimise material mistatement, but does not check financial figures..
STs = tests evidence for the balances and transactions
You’ve got it 💪
You explained things I hadn't understood in class in 2 hours in less than 15 mins!! Thank you so much!!
You’re so welcome!
Yesterday I got my marks for auditing and they were depressing. Today I stumbled upon this channel and all I can say is that am gonna pass this semester. All the stuff that I learnt in semester one are on your channel 😭❤️
I loooooove the bank rec example! When you mentioned about the signature = goosebumps!
Amanda…I am beyond grateful for finding your channel. I’ve recently started a new job and since I came directly from University it was difficult for me to grasp this. You helped a lot!! Thank you so much! Just got a new sub. ♥️
HOW IS THIS BETTER THAN THE CLASS I PAY COLD HARD CASH FOR AT UNI????
Sorry about that Matt!
@@amandalovestoaudit No it's great! I was saying this is better than the class I pay for!!!! Thank you for what you do!!
This is way better than my audit textbook. Thanks so much!
Super awesome! the concept is crystal clear Ma'am.
This is great for anyone who’s about to sit their CISA exam. I love audits too, but from an IT perspective. Your videos are a dream come true for all of us who are learning to differentiate between various financial controls, as we need to understand them very well in order to pass CISA
Great job... love your way of giving understanding...
Again I love your teaching method
Many thanks Kapil!
Very well explained. I was completely lost, but thanks to you, I understood this topic. Thanks for the great job.
Thank you so much for creating these wonderful videos! You explain the subject so well. It's amazing that these high-quality videos are freely available.
You're very welcome!
Exactly the kind of channel i was after for my ACCA - Audit preps. Easy to understand videos. Thanks for for the resources.
Glad to help - we need more accountants in the world!
This was sooooo helpful!!!
this is a fantastic topic. thanks Amanda!
very thorough explanation. finally got it!!! thank you ! subscribed
Goodness! This is the best. Very easy to understand. Superbly informative. Thank you Dr. A!
Glad it was helpful! 😊
You explained that with a great example - thanks so much
After going through so much theory and getting frustrated over it all, it took just over 10 mins to get everything sorted, huge thanks to you Ma'am !
You’re very welcome! Best of luck in your exams!
@@amandalovestoaudit It went really well, the result will be out in a couple of days, I want to thank you again, though there were some issues I had in my exams which I'd like to discuss with you if you will be so kind to let me know where we can talk ? Bunch of thanks again !
I just found your channel. Amanda you are the best. I have an exam in 3 days and you're God sent. They are very short and sweet and very informative. Amanda ILYSM
Good luck with your exam! Please do come back and tell me how it went 😊
I can definitely relate 😋 I've got 3 days left too 😂
Thanks for your amazing work 😊
You are the best person that explains auditing!!! For real keep going
Thank you so much Sousan ☺️
Test of internal control for bank rec rests upon 'division of duties.' The person who inputs the entries onto the cash journal must be different from the one who performs the bank rec. The latter puts his signature on the bank rec. Usually does not involve the financial controller.
That is a great example - thanks for sharing :)
I think it depends on the scenario given, if your scenario says a busi eases Internal control is that the financial controller or financial manager reviews and authorized the bank rec
Then the TOC for the auditor would be to inspect on a sample basis for a 12 month period that the signature/authorization is infact theres
I think that's why Amanda mentioned "financial controller" which wasnt wrong
Brilliant job Amanda CA 👏🏻
Failed my advanced audit CPA exam ireland in April... resitting in 4 weeks...this is just what I need... cuts through the waffe... straight to the point... clear and precise... will be checking out other areas on this channel 🙏👍
Thank you - there are plenty of resources in my study guide - bit.ly/studyaudit - good luck!
Extremely useful video which has cleared my confusion....Thanks a lot Madam..Stay blessed
Amanda mam thanks for clarifying the difference.Thanks a lot again.
Thank you very for this video, it cleared how i can approach planning my audits.
From PNG ❤
That is great news! Waving 👋 hi from Australia 🇦🇺
Thank you very much for your work and videos Dr
They are really helpful
You're so welcome Sergio 😊
Your teaching style is awesome... Making a theoretical subject so easy to remember
That is so good to hear! Thank you for watching!
Thank you so much Amanda!!! It was really helpful
You are so welcome ☺️👍
you explained it so well.....thank you so much
Thank you 🙏
Thank you for the explanation!
Amanda , I really love ur work .u r amazing with ur teaching styles nd skills.
Thank you so much!
Wow, wow wow..
Now I throughly understand the difference between internal control and substantive test.Please keep up your good work👍👍
That is so good to hear - it can be very confusing at first ☺️
New subscriber from Singapore. Im taking ACCA Audit paper. You explained it better than my current tutor! Thank you!
Hi Kane! Welcome! And good luck - I visited Singapore back in December and it was amazing (though I have not had any luck replicating the Singaporean hainanese chicken - I'll keep trying)
Gosh, you've helped me out with this video. Thanks.
Glad I could help!
I also love audit but I need someone to explain it with practical application
Which I liked the most in this video
This is the first video I have watched on your channel
And I loved it
Looking for more practical based videos.❤️
Definitely check out my audit study guide for more examples ☺️
amandalovestoaudit.com/learning-resources/audit-study-guide/
Loved this❤
I'm preparing a graduation thesis and this was useful , thanks a lot
You’re welcome!
Really nice explanations
You are awesome.... just got a new subscriber!
My college professor could not explain this concept well. This video made total sense.
Thank you Donta! 💖
AmandaLovesToAudit Thank you! 😊
Thank you!. I am preparing for CISA and your videos are helping me much. 👌
You’re welcome Sumeet - good luck in your exam 💪
@@amandalovestoaudit thank you! 👍
Very clear concept 👌
Thanks Kapil 🙏
Helpful videos
Thank you for this! :)) very helpful! :)
You're so welcome Alana!
Excellent ma'am
Thank you 🙏☺️
Thanx Amanda
Thanks a lot ma'am.
You are most welcome 😊
Thank you so much. l've subscribed to your channel, its really helpful.
Thank you for subscribing 🙏😊
Yes .. it's really helpful
That's awesome!
If only I knew your channel sooner. Maybe I aced all my audit subjects huhu
meticulously explained, thanks for sharing the knowledge.
I never knew a price list was considered an internal control. Good tip!
Even things like an envelope with a window for the address can be a control!
In my opinion in many cases you have to do two tests: (1) are controls design in a way that meet control objectives which usually also means re-performing the check activity (2) are IC working in a way that were design. If you miss the step (1) then you can conclude that IC are working OK but inf fact the design has such significant weaknesses that control objectives are not obtained and also our financial statement objectives are not met. Also if you get bad results from re-performing of controls, so material differences, then you have to conclude, that control may have significiant or material weakness. So in my opinion there is difference in testing of controls and substantive testing in theory but if you want to achieve meaningful results with internal control testing you have to do both and both results give you significance of IC deficiency.
Yes - this is exactly what I state in the video. You test controls only AFTER you evaluate their design and deem the CR to be Low or Moderate.
I wouldn’t call the review of the client ICS (internal control system) a test - but rather an evaluation.
Hello watching from the Philippines
Thanks for watching Ira!
THANK YOU
Thank you so much for these videos Amanda, you are doing the Lords work, thank you.
I needed this phew 😊
Yay! Good to hear it was helpful!
Thanks for the video. I now fully understand the concept. I have ACCA, Audit and Assurance exam coming up. My tutors are idiots compared to your explanation. You've got yourself a fan here in the UK.
Thanks TJ! Be sure to provide your institution with some constructive feedback if they have the anonymous evaluation surveys - they can’t improve if they don’t know 😊
This helps
I have a question for you. When you identify internal controls in accounting, would that mean you would need to focus on substantive controls, to ascertain how weak internal controls are, and how to ultimately mitigate those weak internal controls??
Thanks again
You're welcome!
Thank you ms amanda :)
Doctor
I’m not fussed - as long as you’re learning! Some students prefer to call me Dr Amanda, others just Amanda, others Dr White - whatever you’re comfortable with 😊
@@amandalovestoaudit Thanks to this video and your other videos, i managed to get fresh graduate job at big 4 :))). THANK YOU SO MUCH
Thank you!!
You're so very welcome Martina!
I have a doubt Amanda, when it comes to test the Design of the Control during Sox's walktrough what the appropiate test approach is? Substantive, controls test or dual?
Nice vid btw
Hi! For SOX s404 - you walk through the process to understand the DESIGN of the controls. Then you’ll need to TEST them to see if any material deficiencies exist.
Sometimes that testing might mean you’re doing a dual purpose - it just depends on the specific control.
Thank you for your clear explanation! If you were my lecturer for audit, think i would ace the subject.. haha
What is the linkage between the control objectives and the test of controls and could you provide an example that would help me understand the linkage between the two?❤️ please and thank you.
New Subscriber here. I do love your lectures, it's more understandable. Could you do a video of Audit sampling and using statistical approach or stratification to come to a conclusion.
Hi Victor - welcome!
Try this video for sampling
Topic 6 - Sampling
czcams.com/video/DoiGOpP4nF0/video.html
Amanda is what you teach relevant to Us audits as well
Hi Masis - yes it is ☺️ processes are the same, but the auditing standards have a different structure in the US (they are I think the only country not following the international standards)
Thanks alot
thank you
So ma'am we can say in TOC we are testing control activities and efficiency and effectiveness of a control and while in substantive procedures we are testing assertions at transaction level.
Is that correct to differentiate
I am pursuing chartered accountancy in india , your teaching style is awesome
That is fantastic to hear - the world needs more great accountants - good luck in your exams!
@@amandalovestoaudit i want to become an auditor not Accountant
Awesome.... Love from India...
Thank you! Hope you are staying safe and well ☺️
Amanda, which one of these is substantive test procedure:
1. Use of generalized audit software to verify total of accounts receivable file
2. Test of invoice calculation process
They both are ☺️
Hello
You have a gift. This has always been a rather hazy area for me but with your examples it has become much clearer. Do you have further examples of these two, possibly in a document form or can you point me to a website where l can access them. They would be very useful. Talking of which could you do something along the lines of internal controls.
Hi bobo jo - there are other videos on my channel. They are all organised here in my study guide - amandalovestoaudit.com/learning-resources/audit-study-guide/gathering-audit-evidence/
Hope this helps!
can you use benfords law to do a test of controls and a substantive analytical procedure?
hi. at 7:58 you mention re performance as an example of a substantive test. however in another video you mentioned reperformance is only for internal control testing. so i am slightly confused
Dear Dr Amanda, I am having difficulty understanding TOD/ test of details, Substantive analytical procedures (SAP) and analytical procedures. Wouldnt SAP and TOD have a dual purpose as well. As TOD requires direct evidence on items that adds to the amount presented on the financial statements and are used as evidence to detect misstatements at the assertions level wouldnt SAP and Analytical procedures do the same?
Hi Ananta - yes - you're right - all of these different types of tests feed into one another - and TOD will help you get to tests of balances. I prefer to think about designing procedures in a way that is focused on finding the best procedure (substantively) for the assertion - which might be a SAP, TOD or TOB :)
Great video! But quick question. So if you're performing a Dual Purpose Test, how does this affect the initial Detection Risk you've set to pull your sample? My understanding is that an auditor initially tests controls in order to determine the number of samples the auditor needs for substantive testing. (Solid controls, less samples. Weak controls, more samples.) But if the controls and substantive tests are being done at the same time, then it seems our sample is no longer based on our assessment of internal controls, since those controls haven't been tested yet?
A fab question - when you conduct a dual purpose test - the substantive part won’t be the only test you conduct substantively.
So essentially you’ll conduct the dual purpose. Then based on your findings of the control & substantive test you’ve just done - you can adjust future procedures based on what you’ve found as the results ☺️
Does that make sense?
@@amandalovestoaudit Hi Amanda, thank you for responding. And it does! But just to give an example... So let's say I want to test payroll. And the audit universe is 500 employees for the year. If I want to pull a sample, initially I would have considered the strength of the organization's controls over payroll before I pulled the sample. And if there were strong controls, a lower sample, and weak controls, a higher sample. And this is what I would base my variable sampling on to perform substantive testing.
But with dual purpose testing, I haven't tested controls yet...since that testing will now be part of my substantive testing. So I'm curious, what is my payroll sample based on for dual purpose testing, if I haven't done control testing yet?
Or (based on you saying "you can adjust future procedures based on what you've found as the results.") am I pulling an initial, smaller sample for dual purpose testing over payroll...and then pulling a larger sample for payroll based on the results of the initial dual purpose test? Thanks again!
Hi Amanda, how did u put what you're writing in the background... it's an amazing technique for teaching
Hi - it is all editing magic in Adobe Premiere Pro ☺️
@@amandalovestoaudit nice, I'll check it out sometime... am a fan of how you present your work and am sure it is integral thereto
Hi Amanda, Can you make a video that goes over the reliable evidence i.e of importance like can the auditor use an email, contract, bank statement, etc. to rely on. I know that the auditors own personal knowledge is higher and then outside sources versus externally generated documents. But does an email count as a source document?
This is a great suggestion Vatishia and it is rocketing to the top of my list!
can you explain about how substantive control and testing control in inventory and warehousing cycle?
In sample words, substantive procedure used to test the figures in financial statement like recalculte cash rec in her example ,, test of control used to test effectiveness of control like signature in her example - always stick to the basic and you should be fine.
Good lecturing skills
You deserve a place in the heaven.
Hi mam,
Myself suman saurav from India pursuing CA. Your videos are great help to me. Thank you so much for these videos. 🌞
I have been a member of many audit engagement teams and i can relate the concepts with what i have done while performing audit. I must say that you have indepth conceptual clarity. Thank you so much for making crystal clear the auditing concepts.
You are so welcome!
Would you do videos on specific industries audit? Like construction industry?
Not at this stage - still lots of basic content to cover!
Like your video, may I ask is the audit related to the Canadian or American audit pls, bcz I'm studying CPA in Canada, so i wanna know if your videos are relevant or not. Thank you!
Hi Yvonne - the foundations of auditing are the same around the world - so definitely relevant if you are in the USA/Canada. Canada also follows the International Standards on Auditing (not the US standards) - so my series working through each ISA is useful sa well 😊
@@amandalovestoaudit thank you so much, that's great that i won't mess up the rules lol.
thanks in a million amanda. i love the way you breakdown your explanation. i'm elated that i subscribed to your channel. this is the pathway to my success in audit and internal control field. have worked as an internal control personnel in an FMCG company for 9yrs but the control we do is not detailed i believe i will learn alot on your channel and improve my skills in the field of audit.
Thank you Kanene 🙏☺️
I enjoy your videos due to the clear explanation and high production value.
A couple of small additions I’d like to make are:
- a signature is not sufficient evidence for especially a review control. We also need to evaluate the precision of the control. How does one know that it wasn’t just rubber stamping by someone with their eyes closed.
- when testing an automated control recalculating isn’t sufficient. We should evaluate that the system is programmed and configured correctly.
Of course it is always easier to comment on something.
What software do you use to visualize the writings on your ipad on the screen?
Please could you explain more the difference between substantial testing and control testing
Hi Osman - what part is particularly confusing for you?
Thank you Amanda, i would love to email you some questions i responded to for marking then you assist me.
Hi Elisheba - thanks for your message - unfortunately I don't provide private consultations at this point.
Good Evening Madam
Mam can you tell me if there is a difference between Analytical Procedures and Substantive Analytical Procedures ? If there is then what is it.
Hi Rajat - there is! And I’m planning out a video to answer your question ☺️
@@amandalovestoaudit Ok madam
explanation is theoretically just like that. But I have a feeling the existence of just a signature is not sufficient evidence of effective operation of controls. Some one may sign it without putting much effort thinking job has been done right by subordinate or plain carelessness.
That is absolutely true Mehran - I once came across a client where all of the bank recs were signed in exactly the same spot, in the same colour pen. Turns out they checked & signed them all just before we arrived 🤦♀️🤦♀️🤦♀️
@@amandalovestoaudit :)
I think amanda may be ( may be) incorerct here when she says that " reperformance" is a substantive process... I am reading audit for US CPA and in my gliem maerial; I have an MCQ which says that "reperformance" is a type of internal control.
When you are asked to give a test control and substantive test from a website of a certain company what should you give
Hello Dr. Amanda, is reperformance part of Substantive testing or it is only applicable for Test of Controls? I am confused, I have read 2 books and the authors have conflicting view regarding this. Thanks ahead. 😊
Hi Cindrelle- a great question!
I would normally put reperformance in the substantive category.
That is because if you have a control - there should be evidence that it was performed - eg a signature. So a test of a control should be looking for evidence it was conducted - not re-performing it. (Eg re-performing the bank is substantive)
That said, if you have a computer system that is meant to prevent certain actions - you can “reperform” those controls. Eg try and access a large discount or change a price.
Does that help?
@@amandalovestoaudit Yep, thanks! Therefore, I conclude that all of these (confirmation, inspection, recalculcation, reperformance, Analytical procedures and Inquiry) could be part of substantive testing?
Great content and I wish I had you as my teacher when I was at school! Sorry for the long comment, your video has sparked a few questions which I'm getting a bit confused by...
1. In your first example, would the bank rec itself also be an internal control since it prevents fraud/inaccuracies etc.?
2. With substantive testing, I've read from various sources that substantive testing isn't always required - i.e. in your bank rec example, a review of the evidence of reviewer sign off in a timely manner is enough to conclude the control is operating effectively. But what if the reviewer also got it wrong? They may have adhered to all the policy, but without substantive testing, it's really difficult to know if the process as a whole, which includes the control, is operating as intended. Should substantive testing always be coupled with a test of control where the the test of control is not dual purpose?
Hi Ahmad - yes - a bank rec is an internal control IF it is checked/reviewed by someone - otherwise you could have many incorrect bank reconciliations.
2. Hmm - no - it would be a very bad idea to rely only on tests of controls (which you could do for a Review engagement because of the lesser level of assurance) but definitely not recommended for audits. I would always suggest some substantive testing - even if it is just 10 transactions or items