What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls? A. Assess control risk at a low level. B. Perform both tests of controls and substantive tests on inventory. C. Perform only substantive tests on inventory. D. Perform only tests of controls on inventory.
Added by Brian B.
Step 1
An auditor evaluates the effectiveness of internal controls and decides whether to rely on those controls or to perform substantive tests directly. Show more…
Show all steps
Your feedback will help us improve your experience
Jennifer Stoner and 73 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
During the audit of Glazier LLC, a distributor of glass products throughout the continental United States, it has been determined by the auditor, Locktight CPAs, that the client's system of internal control is not as robust as had been initially thought. As a result of this finding, which of the following strategies is most likely? The auditor will assess risk of material misstatement as high and adopt a reliance approach, whereby the auditor will perform increased substantive testing, including tests of details. The auditor will advise the internal control function to begin remedying defective internal controls, and will return to the audit once these controls have been corrected. The auditor will assess the client's controls as defective, increase the risk of material misstatement and substantive tests, and decrease audit risk. The auditor is likely to assess the risk of material misstatement as high, and rely less on the client's controls. As a result, the auditor will increase substantive testing to compensate for this.
Jennifer S.
Costner Corporation is being audited by Brightside CPAs. As the audit focus turns to the client's inventory accounts, one of the partners in charge of the audit notes that the client maintains excellent and robust electronic records pertaining to inventory. Based on this finding, which of the following might the auditors decide to do? 1. The auditors may opt to perform substantive procedures on the client's records system in lieu of directly auditing the client's inventory accounts. 2. The auditors may choose to defer this part of the audit to the client's internal audit function. 3. The auditors may decide to use an audit data analytics (ADA) procedure to test the population of inventory. 4. The auditors may decide to preemptively issue a clean audit opinion on the client's inventory, as the electronic records will suffice.
Akash M.
21. Which of the following is not a consideration when the auditor is attempting to assess the inherent risk? A. Nature of the client's business. B. Existence of related parties. C. Frequency and intensity of top management review. D. Susceptibility to defalcation. 22. Inherent risk is reduced when the likelihood of defalcations is low. This would be true for an account such as: A. Property, plant and equipment. B. Held for trading securities. C. Cash. D. Accounts receivable. 23. Which of the following is an incorrect statement? A. Detection risk is a function of the effectiveness of an auditing procedure and its application. B. Detection risk arises partly from uncertainties that exist when the auditor does not examine 100 percent of the population. C. Detection risk arises partly because of other uncertainties that exist even if the auditor were to examine 100 percent of the population. D. Detection risk exists independently of the audit of the financial statements. 24. Which of the following pertains to detection risk? A. An entity's asset custodian and record-keeping function for cash are handled by one process owner. B. An entity operates in a highly complex business environment. C. An auditor uses substantive analytical procedures instead of tests of balances. D. None of the above. 25. Which of the following statements is correct concerning an auditor's assessment of control risk? A. Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control. B. Evidence about the operation of internal control in prior audits may not be considered during the current year's assessment of control risk. C. The basis for an auditor's conclusions about the assessed level of control risk need not be documented unless control risk is assessed at the maximum level. D. The lower the assessed level of control risk, the less assurance the evidence must provide that the control procedures are operating effectively.
Madhur L.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD