Test of Controls (TOCs) Audit Lecture

Jul 17, 2026

The lecture explains audit procedures focused on test of controls (TOCs) and clarifies how TOCs provide sufficient appropriate audit evidence to determine whether internal controls operate effectively. When controls operate effectively, control risk and the risk of material misstatement in the financial statements decline, reducing substantive audit effort; when controls fail, both risks rise and auditor effort increases. It contrasts TOCs with substantive procedures, lists common procedure types (e.g., inquiry, inspection, recalculation, re-performance), and illustrates with physical security and password-strength examples. It also sets criteria for writing good audit procedures (action verb, clear purpose, relevant subject) and covers walk-through testing across initial and recurring audits.

LanguageEnglish

CategoryExam

FormatDOCX

Pages3

Reading Time8 min

AccessFree to download

AA-AUDIT & ASSURANCE – BY KASHIF KAMARAN – FCCA LECTURE 18 (IN SEQUENCE) LECTURE 2 - SYLLABUS AREA – C Topic 1: Test of controls (TOCs) Objective: To understand – what test of controls are? Test of controls (TOCs) are audit procedures to gather sufficient appropriate audit evidence (SAAE) that whether controls are operating effectively or not If controls are operating effectively: Control risk will go down Risk of material misstatement in FS go down as well That means the auditor efforts to gather SAAE on financial statement will reduce If controls are not operating effectively: Control risk will go up Risk of material misstatement in FS will go up as well That means the auditor efforts to gather SAAE on financial statement will increase Student note: TOCs are extremely important because of the conclusion of TOCs will help auditor define the extent of audit procedures to be performed over the financial statements Audit procedure There are two types of audit procedures which are designed by the auditor namely: Test of control (syllabus C) Substantive procedures (Syllabus D) TOCs – gathers SAAE that whether controls are or are not operating effectively SP- gather SAAE that FS are free/ or not free from material misstatement List of audit procedures available to the auditor which can be performed either as test of control or as substantive procedures are as follow: Inquiry Inspection Recalculation Re-performance Observation Analytical procedures Confirmation letter For e.g. The management claim they have a strong physical security at the warehouse (Control) Auditor will visit the warehouse and observe the physical security at the warehouse to ensure its present and operating effectively. (TOC) There are strong password on the computer systems of the Alpha company (control) Auditor will enter some weak passwords on the computer system like for e.g. the name of the company Alpha to ensure that the system reject it to confirm password are indeed strong. (TOC) What is a good procedures? Procedure whether it’s a TOC or a SP, should start with an action word/ verb – because procedure means auditor is doing something. (look at the yellow highlighted part above). Procedure whether it’s a TOC or a SP, should end with a purpose or an objective that is what the auditor is trying to achieve with the procedure ( the purpose starts with – words like “to ensure / or “to confirm” and basically its like asking yourself when writing a procedures “ why are you doing it?”) Procedure whether it’s a TOCs or an SP, should have a source / subject matter For e.g. Observe the physical security at the warehouse to ensure its present and operating effectively. (TOC) Student note: A good procedure = ASP= 1 mark Definition of audit procedure Walk through test- understanding & example In the first year audit, or an audit of an new audit client, the auditor will understand the system put in place by the management e.g. sales, purchase, payroll etc. and document the system either b

Jul 17, 2026

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