The four-step approach to designing tests of controls is as follows:

1. Apply the transaction-related audit objectives to the class of transactions being

tested

.2. Identify specific control policies and procedures that

3.Develop appropriate tests of controls for each key control.

4.Design appropriate substantive tests of transactions considering deficiencies in

internal control and expected results from 3 above.

The primary focus of these objectives is on the fair presentation of account balances

in the financial statements. And it is necessary t o e n a b l e t h e a u d i t o r t o determine

if the overall planned evidence is the most efficient and effective in the

circumstances. In order to do this, the auditor must make assumptions about

the results of the tests of controls and substantive tests of transactions. Ordinarily

the auditor will assume no significant misstatements or control problems in

tests of controls and substantive tests of transactions unless there is reason to

believe otherwise. If the auditor determines that the tests of controls and

substantive tests of transactions results are different from those expected, the

amount of testing of details of balances must be altered