Which of the following is a reason why an auditor needs an understanding of internal controls?
A)To provide individual comments on internal control non-compliance.
B)To become comfortable that the client will pay its audit bills.
C)To assess materiality.
D)To assess the risk of possible misstatements in the financial statements.

Question

Quizplus · Accepted Answer

An auditor needs an understanding of internal controls to assess the risk of possible misstatements in the financial statements. This understanding allows the auditor to identify weaknesses in the system that could lead to errors or fraud, and to design an audit program that addresses these risks appropriately. Option A is incorrect because the auditor's role is to assess the system of internal controls as a whole, rather than provide comments on individual non-compliance. Option B is incorrect because the auditor's focus is on ensuring the accuracy of the financial statements, not on the client's ability to pay the audit fees. Option C is also incorrect because materiality is a concept relating to the size or significance of an item or transaction, and while it is relevant to the audit process, it is not a primary reason for understanding internal controls.

Which of the Following Is a Reason Why an Auditor