When an error or exception is identified during substantive testing, the first response is to:
A) qualify the audit report.
B) understand why the error or exception has arisen.
C) increase the sample size.
D) report the error or exception to the audit committee.

Question

Quizplus · Accepted Answer

Understanding the reason behind the error or exception is crucial to determining whether it is an isolated incident or a systematic issue that requires further investigation. It also helps to assess the impact of the error or exception on the financial statements and overall audit risk. Qualifying the audit report, increasing sample size, and reporting to the audit committee may be necessary depending on the severity of the issue, but understanding the root cause should always be the first step.

When an Error or Exception Is Identified During Substantive Testing