Question

In: Accounting

1) Why does the audit firm perform tests of controls after making its preliminary assessment of...

1) Why does the audit firm perform tests of controls after making its preliminary assessment of control risk? Discuss. (2) Could the audit firm decide not to perform tests of controls (or to reduce them to a very low level)? When and Why? Discuss. (3) Could the audit firm use analytical procedures as a method of testing of controls? Why or why not? Discuss.

Solutions

Expert Solution

The auditor shall perform test of control becaues:

  1. The auditor's assessment of RMM at the asertion level includes an expectation that the controls are operating effectively OR
  2. Substantive procedure alone cannot provide sufficient appropriate audit evidence at the assertion level.

The auditor may decide not to perform test of controls if:

  1. The auditor's assessment of RMM concludes that the controls are not operating effectively OR
  2. The controls are not in place

As this will lead additional work and wasteage of time

The auditor can perform analytical procedure as test of control depending upon the following

If the analytical procedure is suitable for the given assertion , the data on which procedure is performed is reliable or the data is not materially misstated the analytical procedure can be performed as the test of control however if  the analytical procedure is not suitable for the given assertion , the data on which procedure is performed is not reliable or the data is materially misstated the analytical procedure cannot be performed as the test of control.


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