Overview of testing internal controls

I've had a few people ask WHY we test internal controls, so I thought I'd make this short overview about why and how we test internal controls, analyse the results and the impact on our audit strategy and the rest of the audit.
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[@quantumphotoelectric8957]

What is the difference between test of design and implementation and test of operating effectiveness? Are both part of test of controls?

[@amandalovestoaudit]

You can't really test the design - you can evaluate the design and whether you think it will be effective at preventing or detecting misstatements - hence when you Assess CR, this is what you are doing. When you implement your audit strategy - you use that CR assessment to determine how much testing of operating effectiveness you are going to do. The evaluation of the design is really the Risk Assessment phase

[@albertogarcia7974]

@@amandalovestoaudit Thank you so much for sharing knowledge in a such practical fashion!

[@asishpanda9123]

Design tests are related to framework. For example lets say you are testing vendor management. In design test you will check whether the company has a vendor management policy and procedure that details about the particular control. In operating effectiveness test, you check out how much adherence is there to the policy and procedures

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hey there! Watching from the US i start auditing in two weeks, just brushing up on my conceptual understanding. Your content is wonderful! Thanks a bunch.

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Great video... Superb explanations and execution of concepts

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You’re very welcome ☺️

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Thank you so much Inna! Good luck in your studies!

[@thakuranupamsingh]

Very well explained Amanda !! Thanks for making such informative videos.

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You're very welcome Anupam 😊

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Thank you Katja! 🙏😊

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You're so welcome Leshi!

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Good luck in your exam Dineo! Please do drop by and let us know how you went (or contact me via FB or Instagram)

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I hope you did well Amna!

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I'm so glad to hear this Naj!

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Awesome! Thank you!

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You are so welcome!

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You’re very welcome Linda!

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Hey Prof! Great to see you on here - much love to everyone in Brazil and South America 😊

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Glad it was helpful!

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Hi Efrosini! Cyprus - wow - thanks for learning with us ☺️

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Thank you!

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You’re very welcome Katende ☺️

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Happy to help!

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Professor, could you please do a series on findings and recommendations? Thanks!

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Thank you!

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Hi kujtim!

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Thank you for watching Kujtim!

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Thank you!

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Hi Mi - hope you're well in Laos - stay safe 😊

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Thanks 🙏 prof, from Timor Leste

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I'm just starting looking at your videos and wondering do your videos apply to IT Audits as well?

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Is one design of test enough? because, what if the meters we have selected are not efficient of detecting the inefficiency in our 1st test design ?

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You’re welcome 😊

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Hey Phebbie! Love my fans from Zimbabwe - you're all so passionate!

[@ShaunAK14]

A couple of interesting things come to mind when I think of AI being able to facilitate 100% testing. Firstly, I don't believe 100% testing will equate to complete assurance as unrecorded transactions will not be detected, so additional procedures to test completeness will be needed. Secondly, how disruptive would such technology be to the industry as there would be very little firms could do to differentiate themselves in the market?

[@amandalovestoaudit]

Hey Shaunak - thanks for your comments - a really great point about how testing 100% of records won’t help us with the completeness assertion 👏👏👍 thanks for sharing your thoughts 🙏

[@staceymorris3611]

@@amandalovestoaudit Hi Amanda, really enjoy your videos. Regarding AI and those that have Type2reports (Class) and accounting/audit firm conducts internal control risk assessment to limit substantive testing for audit when bank account / shares automatically feed from bank / share registry do you think a very low amount of transactions should still be sampled? Also instances of client using broker / portfolio - custodian services then auditor placing reliance on independent audit report of custodian internal controls.. I guess question is I am ok with test of controls / risk assessment when all these are working but what if they are not, just increase substantive testing from say 10% to 30% for example for each client OR if clients use portfolio/custodian services and there is no independent audit report for that custodian service could TOC and minimal deviation is result, would this be sufficient to reduce substantive testing for all future clients? Hope this makes sense (work example haha)

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Hello Amanta This Kannan from India, can you post video for test of design(TOD)and test of effectiveness (TOD)

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Hey Leon! This is such a rapidly growing area - RPA seems to be getting a lot of focus

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Thank you Anna!

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Greetings Bester! Thank you for learning with us ☺️

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Thanks

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Thank you Anoop 😊🙏

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Where we're looking at something qualitative, for example, corporate governance, or culture - how do you test that?

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Hey S.P! Thank you so much for watching from England!

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@@palakshah1492 hi, yes but it was the old syllabus. My advice is learn the standards.

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You are very welcome! ☺️

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