An auditor is examining a nonpublic company's inventory procurement system and has decided to perform tests of controls. Under which of the following conditions should the auditor perform tests of controls?
A)Significant weaknesses were found in the company's internal control.
B)The auditor hopes to reduce the amount of work to be done in assessing inherent risk.
C)The auditor believes that testing the controls could lead to a reduction in overall audit time and cost.
D)Tests of controls are always performed when the auditor begins to assess control risk.

Question

Quizplus · Accepted Answer

The auditor should perform tests of controls when they believe that it could lead to a reduction in overall audit time and cost. This is because if the controls are effective, the auditor can rely on them and reduce the amount of substantive testing needed. Option A is incorrect because if significant weaknesses were found, the auditor would not rely on tests of controls. Option B is incorrect because tests of controls cannot reduce the amount of work needed in assessing inherent risk. Option D is incorrect because tests of controls are not always performed when the auditor begins to assess control risk.

An Auditor Is Examining a Nonpublic Company's Inventory Procurement System