An auditor concludes that the internal controls are operating effectively when in fact they are not. This most likely would result in:
A) reduced audit testing.
B) increased detection risk.
C) increased audit risk.
D) All of the above.

Question

Quizplus · Accepted Answer

When an auditor incorrectly concludes that internal controls are operating effectively, they may reduce the extent of their audit testing, believing the risk of material misstatement to be lower. This can lead to an increased detection risk, as the auditor is less likely to detect material misstatements. Consequently, the overall audit risk, which is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated, also increases.

An Auditor Concludes That the Internal Controls Are Operating Effectively