In determining the level of audit efficiency, once the auditor has identified the key internal controls and identified any deficiencies in order to determine the level of control risk appropriate for a private company client, it is appropriate to decide whether:
A)substantive tests can be reduced sufficiently to justify costs of performing tests of controls.
B)substantive tests can be increased sufficiently to justify costs of performing tests of controls.
C)tests of controls can be increased sufficiently to justify costs of performing substantive tests.
D)tests of controls can be reduced sufficiently to justify costs of performing substantive tests.

Question

Quizplus · Accepted Answer

Once the auditor has identified the key internal controls and identified any deficiencies, the next step is to determine the level of control risk appropriate for a private company client. Based on this assessment, the auditor needs to decide whether substantive tests can be reduced sufficiently to justify costs of performing tests of controls. This means that if the auditor has determined that the internal controls are effective, then he may reduce the extent of substantive tests since such controls have mitigated the risks of material misstatements. This approach is cost-effective because it avoids unnecessary testing while still providing reasonable assurance that the financial statements are not materially misstated.

In Determining the Level of Audit Efficiency, Once the Auditor