|Type of paper:||Essay|
Accounting is one of the major and main activities that each and every firm has to undertake. Accounting audit helps a firm to know if they are making progress or they are just stagnating. In recent year's auditors have discovered discrepancies in many accounting records that why they came up with a measure to counter the same. Substantive testing and control testing were created to ascertain the truth about financial records. This paper seeks to define the terms substantive testing and control testing, their differences, similarities, and how they can be used.
Substantive testing is a procedure in accounting, especially during the auditing procedures which examines the supporting document and financial statements. This is done so as to ascertain if there are errors in accounting records (Groomer et al., 2018). The test is done so as to provide assurance that the records in a firm are performing as planned.
Control testing on the other hand, is an audit system to analyze the value of control used by a customer entity to hinder or notice material misstatements. Auditors also can choose to rely on this control test as part of their activities. If the testing is found to be weak, then an auditor may choose another form of test, therefore, increasing their cost (Jans & Hosseinpour, 2018).
Substantive testing can be used as supporting evidence. Supporting evidence in that the validity of a financial statement can be ascertained by the use of this test. Substantive testing can be used in testing the end cash balances in a bank. They can also be used to check if the loan balances are true and correct by contacting the lenders to confirm so. Since the test can be used to recalculate the calculations as valuing inventory and the physical inventory count.
Testing control is put to use by checking the performance of a test when auditors initiate new transactions. Auditors can use test controls as an observation tool for observing the processes of business, in particular, the elements of controls. The main function of the control testing is to see if the controls have proper functionalities and the transactions are not about the consequences of the goal of the test.
The differences in substantive testing are that they are used to check details so as to verify and ascertain the financial statements. While control testing is checks performed to verify whether internal controls are working or not (Bhaskar et al., 2018). Test controls can be checked to see if they are performing well and if not, then substantive testing can be used instead thereby increasing cost. Testing controls are used to check if the test put in place by the clients are working and if they are viable. While substantive testing is used by auditors to confirm account balances. Substantive testing uses the inquiry of the third party while the testing control requires only internal parties only. Substantive testing can be conducted by an internal auditing employee which helps to rectify any mistake present, while control testing cannot be conducted by an internal auditor.
The similarities of both tests are that they are used to determine the misstatement of firms. Another similarity is that they both can be used as a binding test of the other. When a control test fails or seems weak then substantive testing can be used. They both check financial discrepancies in any financial records and statements. Another similarity is that one is used to determine the functionality of the other (Bhaskar et al., 2018).
Bhaskar, L. S., Schroeder, J. H., & Shepardson, M. L. (2018). Integration of Internal Control and Financial Statement Audits: Are Two Audits Better than One? The Accounting Review.
Groomer, S. M., & Murthy, U. S. (2018). Continuous auditing of database applications: An embedded audit module approach. In Continuous Auditing: Theory and Application (pp. 105-124). Emerald Publishing Limited.
Jans, M., & Hosseinpour, M. (2018). How active learning and process mining can act as Continuous Auditing catalyst. International Journal of Accounting Information Systems.
Cite this page
Substantive Testing Versus Control Testing - Essay Example. (2022, Dec 08). Retrieved from https://speedypaper.com/essays/substantive-testing-versus-control-testing-essay-example
If you are the original author of this essay and no longer wish to have it published on the SpeedyPaper website, please click below to request its removal:
- New Changes to Maryland's Quiet Title Law, Free Essay
- An Essay Example on Gender Roles
- Community Health and Population-Focused Nursing in This Essay Example
- Essay Sample: The Efficiency of an Automated Home in the Example of The Veldt Story
- Essay Sample: How Effects of Automation May Help or Hurt Your Future Job Prospects
- Free Essay Example - David Hewson
- Essay Sample on Psychoanalytical Criticism of Sonny's Blues by James Baldwin