ACCA Audit and Assurance (F8) Practice Exam

Which of the following is a method used to test Internal Controls?

1. Interviews with clients

2. Systematic reviews of policies

3. Inspection of supporting documents

4. Random sampling of transactions

The correct answer is: Inspection of supporting documents

The correct answer is the inspection of supporting documents as it is a direct method to evaluate the effectiveness of internal controls. This approach involves examining documentation that supports transactions and processes within the organization. By inspecting documents such as invoices, receipts, and contracts, auditors can ascertain whether controls are being applied effectively and consistently. This method allows for verification of compliance with procedures and policies and serves as a tangible form of evidence that internal controls are functioning as intended. In contrast, while interviews with clients can provide valuable insights into the operational effectiveness of controls, they rely heavily on verbal communication and the honesty of the interviewee, which can lead to subjective assessments. Systematic reviews of policies are important for understanding the theoretical framework of internal controls; however, they do not directly test their practical implementation. Similarly, random sampling of transactions is a useful technique for testing the effectiveness of controls over time, but it does not focus on the documentary evidence of those controls being applied. Thus, inspecting supporting documents stands out as the most effective method for directly assessing the operation of internal controls.