Tests of Controls Provide Evidence About the Likelihood for Misstatements
Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.
An exception in a test of control provides only an indication of the likelihood of monetary misstatements in the financial statements because tests of controls do not reveal whether monetary misstatements have actually occurred.
Auditors who test manual controls that rely on IT-generated reports must consider:
A) the effectiveness of management's review.
B) automated controls over the accuracy of information in the report.
C) both A and B
D) neither A or B.
Auditing standards recognize that in instances where a significant amount of audit evidence is in electronic form,it may not be possible to reduce detection risk to an acceptable level by performing only substantive tests.