If an auditor decidthat a client has internal controls that can reduce the likelihood of a) material misstatement for an identified risk, the auditor will:
A) test those controls.
B) qualify the audit report.
C) adopt a predominantly substantive approach.
D) not test those controls.

Question

Quizplus · Accepted Answer

If the auditor determines that the client has internal controls that could potentially reduce the risk of material misstatement, the auditor is required to test the effectiveness of those controls. This is done to gain assurance that the controls are working effectively and can be relied upon in the audit. Therefore, the correct option is to test those controls (option A). Qualifying the audit report (option B) is not an appropriate course of action, as this implies that the financial statements may be materially misstated, which may not be the case. Adopting a predominantly substantive approach (option C) is also not appropriate as this approach is used when the auditor concludes that the internal controls are insufficient or ineffective. Finally, not testing those controls (option D) would lead to an incomplete audit and the auditor cannot form an opinion on the financial statements.

If an Auditor Decidthat a Client Has Internal Controls That