CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceEasy
An auditor is performing tests of controls over the client's sales order processing system. The control being tested requires that all sales orders be approved by a sales manager before being entered into the system. Which of the following audit procedures would be most effective in testing the operating effectiveness of this control?
- AInquiring of the sales manager about their approval process.
- BSelecting a sample of recorded sales orders and examining them for evidence of sales manager approval.
- CObserving the sales manager performing the approval function.
- DReperforming the sales manager's approval by reviewing sales order details.
Show answer & explanationAnswer & explanation
Correct answer: B. Selecting a sample of recorded sales orders and examining them for evidence of sales manager approval.
Examining a sample of recorded sales orders for evidence of approval directly tests whether the control (sales manager approval) was performed for the items that actually entered the system. This procedure provides direct evidence of the operating effectiveness of the control.
Why the other options are wrong
- A. Inquiry provides understanding but is not sufficient on its own to test operating effectiveness.
- C. Observation provides evidence for the specific moment of observation but may not be representative of the entire period.
- D. Reperformance tests the *accuracy* of the approval (i.e., if it should have been approved), but not necessarily that the manager *actually approved* it as per the control.
Tests of Controls: Authorization
Audit procedures performed to evaluate the operating effectiveness of controls that require authorization of transactions or events.
- Focus on whether the control was performed as prescribed.
- Often involves inspection of documentation for evidence of approval.
- Aims to ensure transactions are valid and properly initiated.
Memory trick: Look for the signature, not just the story.