Audit Execution
Testing Internal Controls
Methodologies for evaluating the design and operating effectiveness of controls
2025-12-28
Testing Internal Controls involves evaluating both the design and operating effectiveness of controls to ensure they mitigate identified risks.
🔧 Step 1: Design Effectiveness Testing
Evaluate whether controls, if operating properly, would prevent or detect material misstatements or non-compliance:
- Review documented policies and procedures
- Conduct walkthroughs to understand processes
- Assess control activities' logical connection to risks
- Evaluate segregation of duties
⚙️ Step 2: Operating Effectiveness Testing
Verify controls operated consistently throughout the period:
- Test sample transactions and exceptions
- Review evidence of control performance
- Reperform control procedures independently
- Interview personnel performing controls
📊 Step 3: Evaluate Test Results
Assess the frequency, nature, and cause of control deviations. Determine whether deficiencies represent design flaws or operating failures, and evaluate their significance.
💡 Best Practice
Consider using a risk-based approach: test high-risk controls more extensively and leverage technology to test automated controls across entire populations.