During the planning phase of the audit, the auditor obtains an understanding of the internal control system by considering:

o The types of misstatements that may occur.o The risk that misstatements may occur.o Factors that influence the design of tests of controls and substantive tests.o The assessment of inherent risk.o Judgments about materiality.o The complexity and sophistication of the entity's operations and systems.o The use of manual vs. computerized control procedures.

Such knowledge may be obtained by appropriate inquiry, inspection, or observation. Knowledge may also be obtained based on previous experience with the client and/or an understanding of the industry in which the entity operates.

They are both substantive tests.

Analytical procedures consist of ratios, comparison to last year’s figure and budgets. The aim is to find items that look ‘odd’ or ‘wrong’. If everything looks reasonable then that is evidence that the FS do not contain a material misstatement.

Tests of detail include tracing figures from invoice to ledger, recalculating lots of wages, performing receivables circularisations. These tests give direct evidence that all’s well.