Question

Which of the following audit tests would be regarded as a test of a control?

1) Tests of the specific items making up the balance in a given general ledger account.
2) Tests confirming receivables.
3) Tests of the signatures on canceled checks to board of director's authorizations.
4) Tests of the additions to property, plant, and equipment by physical inspection.

Answer 1

Option 3, which involves testing the signatures on canceled checks to board of director's authorizations, is regarded as a test of control in auditing. Tests of control are conducted to evaluate the effectiveness of internal controls in preventing or detecting errors or fraud. This test assesses the effectiveness of the authorization control over cash disbursements.

Step-by-step explanation:

The question you've asked pertains to the field of auditing, specifically regarding the identification of tests of controls within an audit. A test of control is designed to evaluate the operating effectiveness of the controls in preventing or detecting and correcting material misstatements at the assertion level. Out of the options provided, option 3, which involves testing the signatures on canceled checks to board of director's authorizations, is considered a test of control. This test checks whether the system of authorizations is being followed and whether it is effective in preventing unauthorized disbursements.

Tests of specific items making up a balance (1), tests confirming receivables (2), and tests of additions to property, plant, and equipment by physical inspection (4) could be deemed substantive tests rather than tests of controls. Substantive tests are aimed at detecting material misstatements at the assertion level, whereas tests of controls assess the effectiveness of the control environment. By examining the signatures on canceled checks and comparing them to authorizations by the board of directors, auditors can assess whether controls over cash disbursements are being applied consistently and properly, which is foundational to an effective internal control system.

Answer 2

Tests of the signatures on canceled checks to board of director's authorizations are the correct answer as they evaluate the effectiveness of internal controls over the authorization of transactions. This type of test ensures that company policies and authorizations by the board are being adhered to. Option 3.

Step-by-step explanation:

The question at hand is focused on identifying which of the provided options would be considered a test of a control in the context of an audit. A test of a control is a procedure performed by an auditor to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. Among the options:

• Tests of the specific items making up the balance in a given general ledger account.
• Tests confirming receivables.
• Tests of the signatures on canceled checks to board of director's authorizations.
• Tests of the additions to property, plant, and equipment by physical inspection.

The correct answer is the third one: (3)Tests of the signatures on canceled checks to board of director's authorizations. This test directly assesses whether controls over financial reporting, specifically the authorization of transactions, are working as intended. Testing the signatures to ensure they match the board's authorizations is a way to verify that internal controls concerning authorization are being followed and are effective.

The other options listed are more indicative of substantive testing, which focuses on the amounts and other data to detect material misstatements in the financial statements.