Which statement about the relationship between test of controls and substantive testing is true?

Which statement about the relationship between test of controls and substantive testing is true?

• A. Test of controls can reduce substantive testing if controls are effective.
• B. They replace substantive testing entirely.
• C. Substantive testing is unrelated to controls.
• D. Tests of controls are identical to analytical procedures.

Answer: (A)

Tests of controls help determine whether internal controls are operating effectively. When controls are functioning well, the auditor can rely on them to reduce the amount of substantive testing needed, because the assessed risk of misstatement is lower. This is a cost‑effective way to gather sufficient evidence while maintaining audit quality. Substantive testing is not eliminated—you still need evidence to address residual risk and to support the financial statement assertions. Substantive testing is connected to controls because the extent of testing performed depends on how well controls operate. Also, tests of controls differ from analytical procedures: tests of controls check that the controls are working as designed, while analytical procedures evaluate account relationships and may serve as substantive evidence rather than testing the control itself.

Tests of controls help determine whether internal controls are operating effectively. When controls are functioning well, the auditor can rely on them to reduce the amount of substantive testing needed, because the assessed risk of misstatement is lower. This is a cost‑effective way to gather sufficient evidence while maintaining audit quality. Substantive testing is not eliminated—you still need evidence to address residual risk and to support the financial statement assertions.

Substantive testing is connected to controls because the extent of testing performed depends on how well controls operate. Also, tests of controls differ from analytical procedures: tests of controls check that the controls are working as designed, while analytical procedures evaluate account relationships and may serve as substantive evidence rather than testing the control itself.