AUDIT TESTING :
An audit test is a procedure performed by either an external or internal auditor in order to assess the accuracy of various financial statement assertions. The two common categorizations of audit tests are substantive tests and tests of internal controls. Both types of tests are used in external and internal audits in order to reach established audit objectives, as can be outlined in audit checklists or determined based on the results of audit questionnaires. Audit tests typically are performed on a sample basis over an existing group of similar transactions. Sampling approaches can either be statistical or non-statistical, with the ultimate goal being to obtain the most representative sample of the population before testing begins.
A substantive audit test is a direct test that validates a financial statement balance, while internal control tests are focused on key controls, such as management reviews or standardized templates that are designed to prevent and detect material misstatements. Substantive testing often requires a large deal of recalculating, confirming, and vouching. For example, when an auditor substantively tests an inventory balance, the auditor will go to the on-site location of the inventory, run reports that list the amount of inventory stored on the premises, and physically count each inventory item on a sample basis. Using the same example under an internal control testing approach, an auditor would assess the systems generating the reports, consider the experience level of the personnel on the premises that manage the inventory, and review shipping and receiving documents for the
appropriate sign-offs instead of counting the actual inventory on the premises.