Control Testing in Audits

🔒 CONTROL TESTING: Turning Assumptions into Evidence Designing internal controls is essential—but proving they work is where real assurance lies. Control testing is the bridge between theory and reality, showing whether detective, preventive, and corrective measures actually protect your organization. 1️⃣ Why it Matters • Detective controls (e.g., reconciliations) must flag anomalies. • Preventive controls (e.g., approvals) should stop errors before they occur. • Corrective controls (e.g., backups) need to restore operations swiftly. If these fail under scrutiny, risk hides in plain sight. 2️⃣ Essential Control Testing Cycle 1. Define Control Objective – What risk does the control tackle? 2. Test Design – Does the control, in theory, cover the risk? 3. Test Operating Effectiveness – Does it work in real life? Sample transactions, observe processes, interview owners. 4. Document Results – Evidence speaks louder than opinions. 5. Report & Remediate – Highlight gaps, assign fixes, and track closure. 6. Retest & Improve – Controls evolve as processes and threats change. 3️⃣ Real-World Example Imagine a monthly vendor payment review meant to prevent duplicate payments. Testing uncovers that the reviewer only checks high-value invoices, leaving small duplicates undetected. Insight gained? Adjust the review scope and automate a report for all invoices. 4️⃣ Tips for Effective Testing • Risk-Based Prioritization: Focus on controls guarding material risks first. • Cross-Functional Teams: Auditors, process owners, and IT build a fuller picture. • Continuous Testing: Embed into workflows—don’t wait for year-end audits. Remember: good controls are useless if unproven. Test them early, test them often, and turn risk management into actionable evidence. 🔖 #ControlTesting #InternalControls #RiskManagement #Audit #GRC #Compliance #OperationalRisk #ProcessImprovement #Governance #Assurance #ISO31000 #SOX

One question from my manager that completely changed how I look at controls! A few months ago, I was testing a change review control. On the surface, everything looked good: The change listing was provided. The approvals were reviewed. The evidence matched the list of changes made to production. It was clean. Complete. I documented the workpaper, made sure hit all the testing attributes, and felt confident. My manager pinged me. “Hey Chinmay, just one quick question—how did you validate the completeness and accuracy of the change listing?” I replied, confidently, “Well, the list came directly from the system. It shows 23 changes in the system screenshot. The exported listing matches the total count. We’re good, right?” She paused. Then reframed it. “How do you know those were the only 23 changes made? Look closely at the screenshot - see that filter icon?” Boom. That’s when it hit me. I had missed something critical. There was a filter applied to the report. Turns out, the control owner had only pulled changes made by a specific set of users they knew had change access. That assumption? That’s where the risk lived. Here’s what I learned: ——— Lesson 1: Understand the Risk FIRST (Just how ISACA teaches us to focus on) It’s not just about whether changes were reviewed. It’s about whether ALL changes were captured and reviewed. Missing even one change defeats the purpose of the control. ⸻ Lesson 2: Keep your eyes open. A system-generated report is only as good as the filters applied to it. Validate the filters. Ask for unfiltered raw listing. ⸻ Lesson 3: Always look beyond the attributes. I had done what was “expected” in terms of documentation. But real audit quality comes from critical thinking - asking why and how, not just what. ⸻ I wanted to share this experience because these are the lessons no one teaches in training. But they matter. They make you a sharper auditor. And they help you earn trust when it matters most. If this post helped you see control testing differently, feel free to share it with someone starting their audit journey. One simple question can change the way you audit forever. It did for me. ——— PS: This post 1 of 700 is a snippet from my weekly(ish) newsletter Clarity with Chinmay where share practical audit insights no certification will ever teach you. Subscribe here! #itaudit #audit #cisa #risk #riskmanagement #iia

CTA/IAC candidate Auditing: Test of Control vs Substantive audit procedures. Test of controls 1.Before you test a Control one must exist, implemented by management and in a strong control environment. If during client understanding you conclude it's a weak Control environment, lots of disregard for laws and regulations, company policy and no value for ethics, testing the Control will waste your time and resources. At the end you will conclude that they don't operate effectively. So be careful here. 2. If you decided you test the operating effectiveness, Identify the Control then test it. You can't test a control you do not know or not implemented. Be careful of the distinction between a control and a process. 3. A control Prevents, Detect and correct and error or fraud and it is a management tool. 4. The auditor may place reliance after testing if the audit approach has been concluded for a combined. Remember controls(Programmed and manual) are designed for management Validity, Accuracy and Completeness objectives. These objectives are a mirror image of audit assertions. Try linking each objective with assertions, you will be amazed. Remember you will always perform Substantive audit procedures, Test of controls may reduce extent of these. Substantive audit procedures: 1. These are purely the auditor's tools. 2. There is substantive test of details and Substantive Analytical Procedures. 3. These have nothing to do with controls. 4. You gather independent audit evidence using these and preferably with more reliance on external sources of evidence. e.g Debtor external confirmation of balance will help with existence assertion. Physical verification of employees will cover occurrence of employee cost. Physical verification of PPE vehicles will support existence and condition assessment for valuation assertion. Remember the audit process: Client acceptance(continuance)> Risk assessment>Audit Plan and response >Audit procedures> concluding and reporting. Take care of these and your exam will be a what you want. Good luck. For enquiries email: ctachampions@gmail.com for CTA OR itconquered@gmail.com for IAC related.

Some Internal Audit teams test controls, identify exceptions, assess their severity (high/medium/low) based on materiality and extrapolating these findings across the full population of transactions, and include the issue in their audit report. Other Internal Audit teams will test controls and find the same issues, but they will have also reviewed and assessed: - the tone at the top of the area being audited, and management's capability and competence - if and how risk is identified and managed - the reliability of data entering and exiting the process - how the areas being audited shares and communicates relevant information and data internally and externally - how the auditable entity self-monitors and remediates self-identified issues And armed with this information and the application of critical thinking, the Internal Audit team will be better suited to determine how severe the control exceptions really are, and whether or not the issues are necessary to share in an audit report.