An external auditor is reviewing a highly automated e-commerce warehouse. Because the volume of daily transactions is in the millions, the auditor decides to test the effectiveness of the software's authorization protocols rather than checking individual sales invoices. What type of audit testing is this?

Answer options:

Substantive testing

Tests of controls

Analytical procedures

Statutory compliance testing

How to approach this question

Differentiate between testing the *system* (controls) and testing the *numbers* (substantive).

Full Answer

B.Tests of controls✓ Correct

In auditing, 'Tests of controls' evaluate the operating effectiveness of internal controls in preventing or detecting material misstatements. Because checking millions of invoices (substantive testing) is impossible, auditors rely on testing the automated controls of the IT system.

Common mistakes

Selecting substantive testing. Substantive procedures substantiate the actual monetary amounts.

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