If an auditor acts rationally, the auditor only applies a systems (or part systems) approach when it is economical to do so. In other words, the auditor estimates the cost of gathering evidence of the effectiveness of operation of control procedures (i.e. estimates the additional cost of performing the tests of control) and estimates the savings in costs that will arise through the reduction in substantive testing. If the estimated additional costs exceeds the savings, the auditor does not apply a systems (or part systems) approach, but instead applies a verification (or part verification) approach.
| SCENARIO A | Systems approach | Veriification approach | SCENARIO B | Systems approach | Veriification approach | |
|---|---|---|---|---|---|---|
| Control procedures | 10 | - | Control procedures | 4 | - | |
| Substantive procedures | 12 | 15 | Substantive procedures | 9 | 15 | |
| Total est'd hours | 22 | 15 | Total est'd hours | 13 | 15 |
In scenario A, the additional time for performing tests of controls is 10 hours, whereas the saving in time resulting from the reduced substantiive testing is only 3 hours. In this instance, assuming that the cost per hour is the same for all procedures, the auditor will select the verification approach as the most economical.
In scenario B, the additional time for performing tests of controls is only 4 hours, and the saving in time resulting from the reduced substantiive testing is 6 hours. In this instance, assuming that the cost per hour is the same for all procedures, the auditor will select the systems approach as the most economical.