When obtaining an understanding of the entity and its environment,the auditor should obtain an understanding of internal controls primarily to
A) Identify areas of relatively high risk of misstatement and plan the audit accordingly.
B) Provide suggestions for improvement to the company.
C) Serve as a basis for setting audit risk and materiality.
D) Decide whether to perform an audit for the company.

Question

Quizplus · Accepted Answer

Obtaining an understanding of internal controls helps the auditor to identify areas of relatively high risk of misstatement and plan the audit accordingly. This is because internal controls affect the nature, timing, and extent of audit procedures that the auditor performs. Internal controls also help the auditor to assess control risk, which is one component of the audit risk model used to determine the amount of substantive testing necessary. Therefore, internal controls are important for planning a successful and efficient audit.

When Obtaining an Understanding of the Entity and Its Environment,the