To ensure that internal controls are operating effectively, auditors conduct tests of controls to verify whether controls are properly designed and functioning as intended. These tests help determine if control risk can be assessed at a lower level, reducing the need for extensive substantive testing.

Types of Tests of Controls

Auditors use five key procedures to evaluate internal controls:

1. Inquiry – Asking management and employees about control procedures.

2. Observation – Watching employees perform control activities.

3. Inspection – Reviewing documents for evidence of control performance.

4. Reperformance – Re-executing a control activity to verify its effectiveness.

5. Walkthroughs – Tracing transactions from initiation to recording.

Key Tests of Controls for Relevant Assertions

Auditors focus on the following significant accounts and assertions when designing tests of controls: