Designing tests – determining objectives to achieve
what objectives are you’re trying to achieve. For example if you look at cash
in banks you know that there are two main objectives: Rights and Existence. The
first refers to the right to own without restriction. There are accounts that
can be pledged as collateral for a loan which would not be free and clear.
Existence means that it physically exists.
As a result of this the auditor would then design procedures
around the testing of the cash in bank balance with the idea of obtaining the
best possible evidence. For that reason bank confirmations are an important
source of information due to the fact that it is reliable third party
documentation that confirms both objectives.
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