Design effectiveness refers to the effectiveness of the design of internal control procedures. Management impliedly assert that internal control procedures are effective as to their design. If an auditor wishes to plan reliance on these controls, the auditor gathers evidence of such effectiveness.
Evidence of the effectiveness of design of internal control procedures is particularly relevant to the auditor's preliminary assessment of control risk, CR2, in the audit planning stage. The design of an internal control procedure is considered to be effective if the control procedure has been designed in such a way as to be likely to achieve its objective.
Evidence gathered in relation to the effectiveness of design of an internal control procedure is evidence of the likely ability of the control to achieve its objective. The objective of most control procedures that are of concern to the auditor is to provide management with assurance that financial statement items and underlying account balances and classes of transactions are free of misstatement.
Evidence that a control procedure is likely to achieve its objective includes evidence that the procedure is theoretically sound in its design. This may include evidence in relation to the proposed timeliness of the application of the procedure, the competence of the staff member responsible for its execution, whether the staff member has incompatible duties, whether the control is designed to be applied continuously throughout the auditor's intended period of reliance, the contingency plans that exist when the person responsible for executing the control is ill or on leave, the action that takes place when an exception is detected, corrected and re-entered, and the adequacy of the planned supervision of the execution of the control.
Procedures used to gather this evidence include inspection , reperformance and inquiry . Where the control procedure is computerized, reperformance of the control may be performed using Computer Assisted Audit Techniques (CAATs) such as program code analysis, parallel simulation and test data.
See also operational effectiveness.
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