1) What are "dual purpose" tests and why do auditors use them?
A dual-purpose test will test the effectiveness of controls at the same time it tests account balance to determining the rate of occurrence of error within transactions, process and procedures, as well as errors within a financial statement. Within the testing of controls, auditors will test the account balances simultaneously. For instance, within the testing of an account balance, the test for the procedures used to document a transaction, such as creating an invoice. In addition, the actual result of a transaction tested is to ensure accuracy, such as a purchase that an invoice is directly related. These tests are completed simultaneously, but the results from each test are evaluated separately and the actual testing being ran are testing different areas within the company. Overall, most dual tests are focused on one or two related account balances, as well as on only a subset of the assertions for those account balances. For instance, auditors will assess risk at the asserting and account level, but each test that is completed have different assertions and must be executes and evaluated separately to allow useful results.
Auditor’s Use of Dual Testing
Even though auditors, whom modify the audit risk model, complete this type of testing simultaneously, there are benefits that would allow an auditor to better review the auditee’s controls and processes. For instance, auditors can retrieve invoices to ensure that the processes are being followed, which would be test of controls. Then an auditor can use the same invoices to review the balances with comparison to the actual purchases made within the year, which would test the balance. This type of testing allows auditors to tend to the two goals that are focused on when evaluating controls: setting control risk for the financial statement audit and determining whether the auditee’s controls contain significant weakness. In addition, Sarbanes-Oxley requires that each audit include two opinions: management self-assessment of controls and independent opinion on the auditee’s controls. With the testing allowing such goals to be met by auditing firms, the opinions given are obtained through constant evaluation throughout the auditing process.
Another use of dual testing that is beneficial to the auditing team, as well as the auditee is the reduction in time the audit will take. Since there is more pressure upon an auditing firm to complete an audit because the annual results must be audited before the report can be submitted to the SEC. In direct relation, Sarbanes – Oxley shortened the overall time it takes to complete the audit, which increases the pressure for an auditor to complete audit rapidly. As a result, dual tests allow time to be reduced within the actual audit. For instance, if the ability to test controls within a company simultaneously, the fieldwork will be reduced without limiting quality of the work that...