When the audit team increases the planned assessed level of control risk because certain control activities were determined to be ineffective, the audit team would most likely increase the:
A)extent of substantive tests of details.
B)level of inherent risk.
C)extent of tests of controls.
D)level of detection risk.

Question

Quizplus · Accepted Answer

When the planned assessed level of control risk is increased, it means that the auditor has determined that the control activities in place are not effective enough to prevent or detect material misstatements. In this case, the auditor would need to rely more on substantive testing of details to obtain sufficient evidence about the account balances, transactions, and disclosures. Therefore, the extent of substantive tests of details would increase. Increasing the level of inherent risk would be appropriate if the auditor determines that the nature of the account or transaction carries a higher inherent risk of material misstatement, regardless of the control environment. Extending the tests of controls and lowering the detection risk would not be appropriate if the control risk is already high.

When the Audit Team Increases the Planned Assessed Level of Control