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Auditing Control Testing and Substantive Testing

An audit consists of both tests of controls and substantive testing of financial statement assertions.

Which are more important, tests of controls or substantive tests? Why?

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As prescribed by the SEC, publicly-held companies are "required to prepare documentation that describes how the organization's accounting systems and controls are supposed to operate" (Rittenberg, 2004, p.174). According to Rittenberg, such information provides an interested party with an initial understanding of procedures, and along with tests of controls performed by management, "can effectively become the basis for an auditor's testing of management's assertion on the effectiveness of internal controls" (p. 174).

Through the examination of the processes and procedures that take place within an organization, an auditor develops an understanding of controls in place, and whether or not the controls are operating effectively. For example, if the tests of controls indicate that the client is not careful about being sure shipment has taken place before billing and recording a sale, the auditor may need to increase sales cutoff testing and/or concentrate on sales ...

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This file contains an APA formatted MS Word file contains information on the importance of, and the differences between control and substantive testing during the standardized auditing procedure.