Final answer:
Tests of controls are specific audit procedures conducted to assess the effectiveness of internal controls after obtaining an understanding of them, whereas procedures to obtain an understanding help identify which controls will be tested and are not confined to just a few transactions.
Step-by-step explanation:
The question relates to the concepts used in auditing, more specifically the relationship between tests of controls and procedures to obtain an understanding of a company's internal controls. First, during the planning phase, auditors perform procedures to understand internal controls and identify which controls to test. However, these procedures do not necessarily apply to all identified controls; rather, auditors may focus on key controls that are relevant to their audit objectives. Then, the tests of controls are designed to assess the operating effectiveness of those controls that, if functioning as intended, would prevent or detect material misstatements in the financial statements. Tests of controls are performed when the procedures to obtain an understanding are not enough to assess the risk of material misstatement at a low level. Auditors decide which controls to test based on the importance and risk associated with each control.
Moreover, procedures to obtain an understanding are not limited to one or a few transactions but rather are applied more broadly to understand the control environment, risk assessment process, information system, control activities, and monitoring of controls.