What Is Test Of Controls In Auditing?

Tests of controls in auditing check whether a company’s internal controls actually work to stop or catch major errors in financial reporting. These tests aren’t always required, but auditors use them when they believe the controls are strong enough to lower the risk of mistakes. AICPA, 2025

Quick Fix Summary: Tests of controls aren’t mandatory for every audit, but when auditors run them, they rely on asking questions, watching processes, checking records, or doing the work themselves to see if controls really work. Focus first on the areas that could cause the biggest problems—that’s where testing pays off the most.

What’s Happening in a Test of Controls

In a test of controls, auditors run procedures to see if internal controls—think approvals, reconciliations, or who can access what—are actually doing their job. These controls exist to keep financial reports accurate and make sure the company follows the rules. That said, auditors don’t test every single control. Instead, they zero in on the ones that could really mess up the financial statements if they fail. IFAC, 2024

Here’s how auditors typically test controls:

Inquiry: Simply ask the people in charge how the control is supposed to work.
Observation: Watch the process in action to see if it matches what management says.
Inspection: Dig through records like approval forms or logs to confirm the control was applied.
Re-performance: Do the control yourself to verify it works as intended.

Step-by-Step: How to Perform a Test of Controls

Here’s the playbook for running tests of controls in 2026:

Identify Key Controls to Test
Start by reviewing the company’s risk assessment. Pinpoint the controls that tackle the biggest risks—like fraud or revenue mistakes. Focus on the ones that actually make a difference when it comes to reducing those risks. COSO, 2023
Select the Testing Method
Pick the right test based on what the control does:

Control Type Recommended Test

Authorization approvals Inspection of approval documents

Reconciliations Re-performance and inspection

IT access controls Observation and re-performance
Document the Control Environment
Write down how the control is designed and how well it’s supposed to work. Note who runs it, how often, and what proof shows it’s being followed. This paperwork becomes critical if you need to revisit the control later. PCAOB, 2026
Execute the Test and Evaluate Results
Run the test you picked and log any issues you find. For example, if you’re checking who can approve payments, make sure no one person has too much power. Count how often things go wrong to decide if the control is reliable. GAO, 2025
Conclude on Control Effectiveness
After testing, decide if the control is working well enough. If mistakes happen more than you’re comfortable with—say, more than 5% of the time—you might need to do more detailed testing. That’s a sign the control isn’t strong enough on its own. IFRS Foundation, 2026

Control Type	Recommended Test
Authorization approvals	Inspection of approval documents
Reconciliations	Re-performance and inspection
IT access controls	Observation and re-performance

If This Didn’t Work: Alternative Approaches

Sometimes the first round of testing doesn’t give clear answers. When that happens, tweak your approach with these options:

Expand Sample Size: Test more transactions or controls to get a clearer picture. Doubling your sample from 50 to 100, for example, can make the results more reliable.
Use Computer-Assisted Audit Techniques (CAATs): Let software do the heavy lifting by scanning large datasets for errors or control breakdowns. Tools like ACL Analytics or IDEA are go-to choices in 2026. ISACA, 2025
Perform Walkthroughs: Follow a transaction from start to finish with the person who handles it. Watching the process live often reveals gaps you wouldn’t spot on paper.

Prevention Tips: Avoid Control Failures Before They Happen

You can cut down on control testing headaches by stopping problems before they start:

Design Controls with Testing in Mind: Build controls that leave a clear trail—like electronic approvals with timestamps. This makes future testing a breeze because the evidence is right there.
Implement Continuous Monitoring: Set up automated dashboards that track control performance in real time. Alerts for issues mean you can catch problems early instead of waiting for an audit.
Train Personnel Regularly: Make sure employees know exactly how controls work and why they matter. Missteps often happen because people don’t fully understand the process. SEC, 2026
Update Risk Assessments Annually: Revisit your risk list every year. Controls that worked in 2025 might not cut it in 2026 as the business changes.

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