Final answer:
Tests of controls are designed to evaluate the effectiveness of a company's internal controls, which is Option C: Determine if a control is operating effectively. They help assess if the processes and safeguards in place are functioning as intended to prevent or detect errors and compliance issues.
Step-by-step explanation:
Tests of controls are procedures performed by an auditor to evaluate the effectiveness of the internal controls in preventing or detecting material misstatements at the assertion level. The correct answer to the question is C: Determine if a control is operating effectively. Test of controls focus on the processes and safeguards put in place by a company to ensure reliable financial reporting and compliance with laws and regulations. The goal of these tests is not to test account balances or determine regulatory compliance directly but to assess how well the control measures are working towards those ends.
As an example, one specific type of test an auditor might perform when assessing internal controls could be observing whether employees are following established procedures for cash handling. If the procedures are consistently applied, the control would be considered effective. However, if employees often bypass the procedures, this could indicate a weakness in the internal control system.