4.05 - SUBSTANTIVE TESTING VS INTERNAL CONTROL TESTING Flashcards
4.05 - SUBSTANTIVE TESTING VS INTERNAL CONTROL TESTING
Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertions and risks?
A) Testing the operating effectiveness
of the relevant controls would not be efficient.
B) The internal auditor already has tested the relevant controls and found them effective.
C) The cost of substantive procedures will exceed the cost of testing the relevant controls.
D) The relevant internal control components are not well documented.
A) Testing the operating effectiveness
of the relevant controls would not be efficient.
The auditor would rely exclusively on substantive tests if internal controls were not considered to be effective, or if the
cost of testing controls that the auditor believes can be relied upon would be more costly than the savings associated with a reduction in the nature or extent of additional procedures, rendering the testing inefficient.
Although the auditor may prefer that internal controls be properly documented, the lack of documentation affects neither their effectiveness the auditor’s evaluation as to whether or not they should be relied upon.
Work performed by the internal auditor does not affect the work performed by the external auditor unless the external auditor is using the internal audit function in the performance of audit procedures under the external auditor’s direction.
If the cost of substantive testing would exceed the cost of testing relevant controls, the controls are more likely to be tested resulting in a potential reduction in the nature and extent of additional audit procedures.
4.05 - SUBSTANTIVE TESTING VS INTERNAL CONTROL TESTING
Which of the following explanations best describes why an auditor may decide to reduce tests of details for a
particular audit objective?
A) There were many transactions posted to the account during the period.
B) The audit is being performed soon after the balance sheet date.
C) Analytical procedures have revealed nounusual or unexpected results.
D) Audit staff are experienced in performing the planned procedures
C) Analytical procedures have revealed nounusual or unexpected results.
When analytical procedures produce no unexpected or unusual results, there is a reduced likelihood that the item tested
is materially misstated.
With a reduced risk of material misstatement, detection risk will be set higher and the auditor will do less
work.
The timing of the procedures and the experience of the audit staff do not affect the extent of testing performed.
A large number of transactions would normally be associated with an increase, not a decrease in testing.
