After obtaining an understanding of an entity's internal control system, an auditor may assess control risk at the maximum level for some account balances because he or she:
A) identifies internal controls that are likely to prevent material misstatements.
B) performs tests of controls to reduce detection risk to an acceptable level.
C) determines that the pertinent internal control components are not well documented.
D) believes the internal controls are unlikely to be operating effectively.

Question

Quizplus · Accepted Answer

If an auditor believes that the internal controls are unlikely to be operating effectively, it means that there is a high probability that material misstatements could occur. As a result, the auditor may assess control risk at the maximum level for some account balances to compensate for the increased risk of misstatement. This means that the auditor will rely less on the entity's internal controls and conduct more substantive procedures to obtain sufficient evidence.

After Obtaining an Understanding of an Entity's Internal Control System