cga au2 module 3 20132.pptVIP

Module 3 Internal Controls (2) Reassessment of Control Risk Reassessment of control risk The auditor’s assessment of the components of audit risk may change during the course of an audit. Based on results of the tests of controls, the auditor should evaluate whether the internal controls are designed and operating as contemplated in the preliminary assessment of control risk. Reassessment of Control Risk The lower the assessed level of control risk for an assertion, the more assurance is needed from evidence about controls relevant to the assertion. The evidence may support the assessed risk, then requiring no revision of control risk assessment. If the evidence from tests of controls does not support the planned assessed level of control risk, the auditor should assess control risk higher and revise the audit strategy to increase substantive tests. Effect of control assessment on substantive tests As assessed level of control risk decreases: Change the nature of substantive tests: use analytical procedures rather than detailed substantive tests Change the timing of substantive tests: perform at an interim date rather than at year end Change the extent of substantive tests: select a smaller sample size Regardless of the assessed level of control risk, the auditor should perform some substantive tests. Effect of control assessment on substantive tests When IR and CR are assessed as high, the auditor needs to consider whether substantive procedures can provide sufficient appropriate audit evidence to reduce detection risk and audit risk to an acceptably low level. When the auditor determines that detection risk regarding a financial statement assertion for a material account balance or class of transactions cannot be reduced to an acceptably low level, the auditor should express a qualified opinion or a disclaimer of opinion. Which of the following statements best describes when an auditor should perform tests of controls? 1) When the client’s internal controls