The primary objective of the control testing stage is to gather and evaluate evidence in order to determine whether the auditor may continue planned reliance on the control procedures. Note that this audit stage is only applicable to those (account balance or class of transaction) assertions for which the audit approach is partly or wholly a controls testing approach. (For assertions for which the approach is a substantive approach, there is no need to gather any evidence of the effectiveness of related control procedures.)
Where the audit approach includes planned reliance on one or more of the accounting system's internal control procedures, the auditor, in this control testing stage, evaluates CR3 by gathering evidence as to the operational effectiveness of those controls. The evidence gathered during this stage may either confirm or disconfirm the auditor's preliminary evaluation of CR2 based on design effectiveness. The audit procedures used to gather this evidence are referred to as tests of control. They include inquiry of client personnel, inspection of client records and documentation, observation of the client's control procedures, and certain Computer Assisted Audit Techniques or CAATs.
Evidence of the operational effectiveness of a control procedure includes evidence that the control has been performed in the manner planned, at the planned time, by the person proposed, and continuously throughout the period of intended reliance, and that the performance of the control was supervised as planned.
Any deviations from control procedures are analyzed and, based on this and other evidence gathered, the preliminary control risk is re-evaluated. If control risk in relation to the control over a particular assertion of, for example, a particular account balance is re-evaluated upwards, then, unless a compensating control exists, the auditor alters the nature, timing and extent of audit procedures planned for the next audit stage. This change to the audit program is necessary in order that more evidence, and/ or more reliable evidence, is gathered in respect of that account balance assertion. Otherwise, the auditor continues planned reliance on the control and no change is made to the planned procedures.
