Auditors follow a four-step approach to reduce assessed control risk.What is the order of these four steps?
1) Identify key controls that should reduce control risk for each transaction-related audit objective.
2) Apply the transaction-related objectives to the class of transactions being tested.
3) Develop appropriate tests of controls for all internal controls that are used to reduce the preliminary assessment of control risk below maximum (key controls).
4) For potential types of misstatements related to each transaction-related audit objective, design appropriate substantive tests of transactions.
A) 1, 2, 3, 4
B) 4, 1, 2, 3
C) 2, 1, 3, 4
D) 1, 3, 2, 4

Question

Quizplus · Accepted Answer

The correct sequence starts with applying transaction-related objectives to the class of transactions being tested, followed by identifying key controls, developing tests for those controls, and finally designing substantive tests for potential misstatements. This approach ensures a thorough assessment and testing of the internal control system before relying on it for audit purposes.

Auditors Follow a Four-Step Approach to Reduce Assessed Control Risk