1. Please differentiate Test of controls and Control activities.

Test of control ( TOCs) Control activities

Objectives Evaluate the effectiveness of control Reduce the risk of management
activities
When 1. CR is assessed “ at less than high” based on risk assessment unnecessary
2. Substantive procedures alone is if the management choose to accept or
not sufficient avoid the risk
How If audit trail does exist:  Segregation of duties

•Inspect documentation  Authorization and approvals

No audit trail exists:  Verification

•Observation  Physical control

•Inquiry  Control data

•Re-performance  Reconciliations

 Supervisory

Objects Control activities Risk

2. What is the difference between tests of control and substantive tests give an
example?

Tests of Controls are audit procedures performed to test the operating effectiveness of

controls in preventing or detecting material misstatements at the relevant assertion
level. A test of controls is an audit procedure to test the effectiveness of a control used
by a client entity to prevent or detect material misstatements.

Substantive testing is the stage of an audit when the auditor gathers evidence as to the
extent of misstatements in client’s accounting records or other information. These
tests are required as confirmation to maintain the declaration that the financial records
of an entity are complete, applicable, and correct.

Differentiate between the terms ‘Test of Control’ and ‘Substantive Tests’

Test of Control

 Component: Test of controls is the testing tool for assessing control risk.
 Step: It is the second step in audit testing.
 Types: Test of controls can be classified into two types: Concurrent test and
planned tests of control.
 GAAS: It has no specific formulation of GAAS.
 Determination: It determines effectiveness and efficiency of internal control.
 Basis: Test of control is the police end procedures.
 Timing: Tests of control are done in interim date.

Substantive Test

 Component: the Substantive test is the control mechanism of controlling detection

risk.
 Step: It is the third step in audit testing.
 Types: Substantive test can be classified into three types.
 GAAS: It is done in accordance with die GAAS.
 Determination: It determines fairness of financial statements.
 Basis: It is done on the basis of monetary error.
 Timing: the Substantive test is done on the balance sheet date.

In simple terms, control tests involve checking that a client's control is working,
whereas a substantive test involves ignoring client systems and just checking the
numbers. An example: Companies try to ensure their cashbooks and bank statements
are accurate by reconciling them.