Audit and Assurance Practice Exam

A client has an established control procedure in which recorded accounts payable are reconciled to monthly statements. If substantive tests indicate that the control is functioning appropriately, must the auditor reperform the reconciliations?

1. True

2. False

3. Only if it is required by law

4. Only in high-risk situations

The correct answer is: False

In this scenario, the auditor is assessing the effectiveness of the control procedure that involves reconciling recorded accounts payable to monthly statements. If substantive tests have already demonstrated that the control is operating effectively, this indicates that the risks associated with accounts payable are sufficiently mitigated. Substantive testing involves direct verification of account balances or transactions, which can be used to obtain sufficient appropriate audit evidence. When these tests confirm that the controls in place are functioning as intended, the necessity for the auditor to reperform the reconciliations diminishes. This is because the auditor relies on the effectiveness of the controls to assure that the assertions related to accounts payable are accurate. Therefore, the auditor is not required to reperform the reconciliations, as the substantive tests have provided adequate evidence that the control environment is reliable. This practice helps streamline the audit process, allowing auditors to focus on higher-risk areas or issues that have not been sufficiently addressed by the existing controls.