Question

In: Accounting

the client is a large company with sophisticated internal controls. the auditor does an extensive amount...

the client is a large company with sophisticated internal controls. the auditor does an extensive amount of work to understand internal control and the same level of work to test controls. the control risk used in this situation is most likely

a) at a level determined at a later date

b) at the lowest possible level

c) at the maximum level

d) at the level assessed due to the understanding

Solutions

Expert Solution

As per infomation given in question,

the client is a large company - Large companies have greater risk of material misstatement because even a small loophole in system can cause loss of millions. So, it increases control risk.

But it is also given the the company has sophisticated internal control in place - which reduces chances of fraud or misstatement in the company. So, it decreases the control risk.

Then it is given that the auditor also has done extensive amount of work to understand internal control - which signifies that the auditor is aware of internal control in place and if there is any loophole in the system, there is a greater possibility that it came to notice of auditor in this process. So, it reduces the control risk.

and it is also given that he also performed the same level of work for test control - which signifies he has done extensive amount of work on test controls also. Performed test controls also provides auditor with greater confidence on the internal control system in place. So, this also reduces the control risk.

So, by concluding the information given in question, it can be said that the control risk in this situation will most likely at the lowest possible level.

ekkarill92 answered 1 year ago
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