Audit and Assurance Practice Exam

After identifying the risks of material misstatements, which audit plan would the auditor implement when control risk is believed to be high?

1. The only evidence the auditor plans to obtain is from tests of details.

2. A reliance on internal controls to gather evidence.

3. A focus on analytical procedures rather than tests of details.

4. Performance of extensive substantive analytical procedures only.

The correct answer is: The only evidence the auditor plans to obtain is from tests of details.

When control risk is assessed as high, the auditor is concerned that the internal controls in place may not effectively prevent or detect material misstatements. Therefore, the auditor needs to gather additional substantive evidence to support the financial statements. This approach involves performing tests of details, which are direct examinations of the underlying financial data, rather than relying on integrated internal controls or analytical procedures. Tests of details provide a more robust form of evidence because they involve verifying transactions and balances rather than inferring reliability through reliance on internal controls. By focusing solely on tests of details, the auditor mitigates the risk that material misstatements remain undetected. This ensures a more thorough examination, which is essential when control risks are high. Other options that suggest relying on internal controls or analytical procedures would not be appropriate in a scenario where the auditor has doubts about the effectiveness of those controls to act as reliable evidence for the audit. Thus, the strategy to prioritize detailed evidence collection aligns with the heightened concern over control deficiencies.