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What's the difference between "Test of details" and "Test of controls"?

A quick question - what's the difference between "Test of details" and "Test of controls"? Reading AUD Chap 3 from Becker..Thanks. / 

Comment by Hema Suresh 

Tags: AUD Study Group Topics, Q&As

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Replies to This Discussion

Hi Hema - I will try to answer your question about Test of Controls and Tests of Details by simplifying this a little.  Controls can be thought of as the rules that govern an organization's processes, such as segregation of duties found in payroll processing.  When the auditor tests controls then, the auditor is checking to see if the rules are being followed.  Test of details, on the other hand, falls under substantive testing.  When the auditor is doing tests of details, the auditor is examining the underlying evidence (the details) that makes up account balances, etc.   Hope this helps.

Comment by Beverly Blankenbaker on November 29, 2013 at 5:54pm

@Hema - A test of controls is testing the controls around a particular process.  The assumption is that if the control is designed and operating effectively, it will result in accurate financials.

A test of details (which is part of substantive testing) is testing the balance itself.

As an example, a test of controls around receivables may be that no sales are authorized to customers who have exceeded their credit limit.  

The auditor may look for evidence that all customers have outstanding balances below their credit limits or check the system controls to validate the software will not let a sale and receivable be recorded if the customer credit limit is exceeded.  

The auditor can also check things like who has the ability to set credit limits and what the process is for changing credit limits.

You can see that this is not actually testing the receivables balance itself, but rather testing the controls that will help the auditor conclude the receivables are collectible because there is a solid process to set and monitor credit limits.

To test the receivables balance, the auditor is likely to send letters, known as confirms, to the customers confirming the customer's outstanding balance with the client.  If the customers reply that their records agree to your client's records, you can conclude A/R is likely to be properly stated.

This is testing the balance directly and is not testing the controls the client has for recording A/R.

Hopefully that helps.


Comment by Rob @ Pederson CPA Review on November 29, 2013 at 6:01pm

@Beverly - Great answer.  Looks like I was typing mine at the same time and did not see yours.  Apologies...

Comment by Rob @ Pederson CPA Review on November 29, 2013 at 6:05pm

This helps me and here's my stab. I hope it's a decent narrative summary. Both use similar techniques but their perspective is different. ToD is a substantive test done on every audit aimed at account balances and disclosures. ToC tests the entities controls and may not be done at each audit. Controls aren't about account balances. Procedures for both are similar but their outcomes are different.

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