First Explain The Difference Between Inspection And Reperfor

First Explain The Difference Between Inspection And Re Performance In

First, explain the difference between inspection and re-performance in the test of controls. Provide two examples not given in the text and different from another student. Second, list the four methods of testing controls. Then, give an example of how each would be used in performing tests. In order to ensure your receipt of full credit for your original discussion posts be sure to first read the other students' postings up to that point in time.

Paper For Above instruction

The evaluation of internal controls is a critical aspect of the audit process, ensuring that a company's procedures are functioning effectively to prevent or detect errors and fraud. Among the various techniques used in testing controls, inspection and re-performance are two fundamental procedures that auditors employ to gather evidence about the operation of controls. Understanding the differences between these techniques, along with their applications and the methods used for testing controls, is essential for conducting a thorough and effective audit.

Difference Between Inspection and Re-Performance

Inspection and re-performance are both substantive audit procedures used to evaluate controls, but they differ significantly in their approach and purpose. Inspection involves examining documents, records, or tangible assets to verify their existence, accuracy, and completeness. For example, inspecting a company's sales invoices to confirm that sales recorded match the supporting documentation. This method relies on reviewing evidence prepared by the company's personnel or external parties, providing assurance about the veracity of the data.

Re-performance, on the other hand, entails the auditor independently executing procedures or controls to verify their effectiveness. This method involves the auditor replicating the company's control activities to see if they function as intended. For instance, re-performing a bank reconciliation prepared by the client helps confirm the process's accuracy and reliability. Re-performance provides direct evidence of control performance by testing whether the controls would operate correctly in practice.

Two Examples of Inspection and Re-Performance

Example of Inspection:

• Inspecting employee time cards to verify proper authorization and accurate recording of hours worked.
• Examining inventory shipment documents to confirm that items shipped match sales recorded in the system.

Example of Re-Performance:

• Re-performing a credit approval process by the auditor to confirm that the client's procedures for granting credit are properly implemented.
• Recalculating depreciation expense for fixed assets to verify the accuracy of computations made by management.

The Four Methods of Testing Controls

The four common methods used to test controls are inquiry, observation, inspection, and re-performance. Each method provides different types of evidence about whether controls are operating effectively.

1. Inquiry: Asking personnel about how controls are performed and reviewing explanations for consistency with observed procedures. Example: Interviewing a cashier to confirm procedures for handling cash receipts.
2. Observation: Watching employees perform control activities to assess proper execution. Example: Observing a manager review and approve expense reports in real-time.
3. Inspection: Examining documentation or physical evidence related to controls. Example: Reviewing approved purchase orders to verify proper authorization.
4. Re-Performance: Independently executing control procedures to verify their effectiveness. Example: Recalculating calculations or re-performing bank reconciliations.

Application of Control Testing Methods

Each method plays a vital role in different audit scenarios. For instance, inquiry might be used in understanding the control environment, while observation can assess the actual execution of procedures. Inspection is suitable for verifying documentary evidence, such as invoices or approval forms. Re-performance provides direct evidence by testing the control activities themselves, offering a high level of assurance about control effectiveness.

Conclusion

In summary, understanding the distinction between inspection and re-performance is crucial for auditors to select the appropriate testing procedures. Inspection involves examining existing evidence, while re-performance entails independently executing controls. The four methods— inquiry, observation, inspection, and re-performance—each serve unique purposes and contribute to a comprehensive evaluation of internal controls. Proper utilization of these techniques ensures a robust audit process that effectively assesses a company's control environment and reduces audit risk.

References

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