As operating effectiveness of internal controls improves and is supported by additional tests of controls, substantive testing can be reduced.

Question

Quizplus · Accepted Answer

When the operating effectiveness of internal controls improves and is supported by additional tests of controls, there is a higher level of confidence in the effectiveness of the controls. This can allow auditors to reduce their substantive testing efforts as they rely more on the operating effectiveness of the controls for assurance. However, it is important to note that the extent of substantive testing to be reduced depends on the level of confidence in the controls and the materiality of the financial statement balances being tested. Therefore, while substantive testing can be reduced, it may not be eliminated entirely.

As Operating Effectiveness of Internal Controls Improves and Is Supported