Lesson 17: Testing Internal Controls

If the auditor assesses control risk at less than maximum, then he needs to perform tests of control to support that reliance.
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[@jeanchung8746]

Great presentation! Concise and right to the point. Keep up the good work Blair.

[@zijunliang3746]

This presentation is very helpful for my understanding of the audit risk model. But I still have one question, which is "why the control risk is low when the auditor chooses to rely on the result of analytical procedures?" Because firstly if the control risk is low, shouldn't we use the control testing instead? and if we use analytical procedures, which from I have learned from the class, it belongs to substantive testing, how could the control risk be low?

[@Financelearningacademy]

You cannot change materiality. It is a separate concept from audit risk. You may choose to do less work on internal control because either 1. The controls are deemed ineffective. Or 2. It's more efficient to gather substantive evidence than it is to test controls.

[@ramisimonmusi4647]

Just a quick question, when an auditor perform limited test of controls this means that majority of internal controls are not operating effectively am I right? so can the auditor lower the material figure as a benchmark and do more audit work?

[@leoflores683]

Thanks for this presentation. I am not an auditor but I am working with them now so I am reviewing your material. One slide seems counter-intuitive to me. Wouldn’t the testing be commensurate with the risk? The graph implications and the verbiage in the presentation states that, “The extent of tests of the client’s internal controls depends on our assessment of the control risk. The lower the risk, the greater the reliance, and the greater the amount of testing and evidence required to support that reliance.” Doesn’t testing follow risk? That is to say high risk means more thorough (high) testing.

[@Financelearningacademy]

+Leo Flores There are two types of testing - control testing and substantive testing. In this video, when you say control risk is low, you need to gather evidence to support that assessment. So you do more work on internal controls. Internal control testing is generally speaking more effective than substantive testing, particularly for high volume transaction streams. So you do a little more testing on the internal controls to prove they are reliable, and you do a whole lot less test of details on the transactions themselves. Hope this clarifies the statement.

[@shimukumar514]

17 Testing Internal Controls