After performing risk assessment procedures, an auditor decided not to perform tests of controls.The auditor most likely decided that:
Answer(s): C
Choice "c" is correct. After performing risk assessment procedures, an auditor might decide not to perform tests of controls because it would be inefficient. In other words, the time required to perform tests of controls would be greater than the reduction in time spent on substantive testing. Choice "a" is incorrect. The auditor might decide not to perform tests of controls if the available audit evidence obtained through those tests would not support a decrease (not increase) in the level of control risk.Choice "b" is incorrect. A reduction in the assessed level of control risk can only be justified based on tests of controls. If the auditor decides not to perform tests of controls, the assessed level of control risk may not be reduced.Choice "d" is incorrect. The relationship of inherent risk to control risk does not determine the level of control testing to be performed.
For certain controls, such as segregation of duties, documentary evidence may not exist. An auditor would most likely test the controls by:
Answer(s): B
Choice "b" is correct. Controls for which documentary evidence does not exist, such as segregation of duties, would most likely be tested through observation and inquiry. Choice "a" is incorrect. Corroboration is a substantive test, which generally relies on documentary evidence.Choice "c" is incorrect. Vouching is a substantive test, which generally requires documentary evidence.Choice "d" is incorrect. Confirmation and recomputation are substantive tests, which generally depend on documentation.
As part of understanding internal control, an auditor is not required to:
Answer(s): D
Choice "d" is correct. As part of understanding internal control, an auditor is not required to obtain knowledge about the operating effectiveness of controls. Operating effectiveness is evaluated later, and only for those controls on which the auditor plans to rely. Choice "a" is incorrect. Considering factors that affect the risk of material misstatement is a part of understanding internal control.Choice "b" is incorrect. Ascertaining whether internal controls have been implemented is required as part of obtaining an understanding of internal control. Choice "c" is incorrect. Identifying the types of potential misstatements that can occur is part of understanding internal control.
Which of the following types of evidence would an auditor most likely examine to determine whether internal controls are operating as designed?
Choice "d" is correct. The examination of client records documenting the use of EDP programs is a test of controls.Choice "a" is incorrect. Confirmations of receivables verifying account balances is a substantive test, not a test of controls.Choice "b" is incorrect. Obtaining letters of representation corroborating inventory pricing is a substantive test, not a test of controls.Choice "c" is incorrect. Attorneys' responses to the auditor's inquiries are part of a substantive test, not a test of controls.
Which of the following statements concerning control risk is correct?
Answer(s): A
Choice "a" is correct. Assessing control risk and obtaining an understanding of an entity's internal control may be performed concurrently.Choices "b" and "c" are incorrect. Substantive testing can never be entirely eliminated for significant transaction classes.Choice "d" is incorrect. A standard procedure in assessing control risk is to consider evidence obtained in prior audits about the operation of control activities.
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