If control risk is assessed at maximum, only substantive tests of transactions will be used by the auditor, assuming the audit is of a smaller public company, a nonpublic company, or other type of entity.

Question

Quizplus · Accepted Answer

When control risk is assessed at maximum, it means that the auditor believes that the client's internal controls are not effective in preventing or detecting material misstatements. Consequently, the auditor will rely less on tests of controls and more on substantive tests of transactions and balances to obtain sufficient audit evidence. This approach is appropriate for audits of smaller public companies, nonpublic companies, or other types of entities where the nature and extent of controls are limited.

If Control Risk Is Assessed at Maximum, Only Substantive Tests