Which of the following approaches is most suitable for auditing the finance and investment cycle?
A)Perform extensive tests of controls and limit substantive procedures to analytical procedures.
B)Ignore internal controls and perform extensive substantive procedures.
C)Gain an understanding of internal controls and perform extensive substantive procedures.
D)Ignore internal controls and limit substantive procedures to analytical procedures.

Question

Quizplus · Accepted Answer

Auditing the finance and investment cycle requires gaining an understanding of internal controls to identify control risks and design audit procedures accordingly. This is because the finance and investment cycle involves significant financial transactions and is therefore susceptible to material misstatements. However, substantive procedures are also necessary to ensure that the financial statements are fairly presented. Therefore, a combination of gaining an understanding of internal controls and performing extensive substantive procedures is the most suitable approach. Option A puts too much reliance on tests of controls, while option B completely ignores the internal controls. Option D ignores the need for substantive procedures.

Which of the Following Approaches Is Most Suitable for Auditing