Discuss the audit test procedure "Observation" and how such a procedure would be used in an audit of a Payroll or Accounts Payable process. What results or conclusions, if any, can you arrive at, if you have found no exceptions or errors. 

B. Design & Operating Effectiveness:

1. For audits of a business process;

a) Which of the following should be performed first: test of operating effectiveness (TOE) or test of design adequacy (TOD)? Please provide your reasoning. 

b) If you find exceptions or errors in either TOE or TOD, what should steps should the auditor take?

2. Is evaluating control design more challenging than evaluating operating effectiveness? Include your arguments for your position.