After obtaining an understanding of an entity's internal control system, an auditor may assess control risk at a high 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 the auditor believes that the internal controls are unlikely to be properly or effectively operating, then they may assess control risk at a high level for some account balances. This means that they believe that there is a higher risk of material misstatements in those account balances due to weaknesses in the internal control system. The other options, such as identifying internal controls that are likely to prevent material misstatements or performing tests of controls to reduce detection risk, would lead the auditor to assess control risk at a lower level. The lack of documentation of internal controls may also indicate weaknesses but is not necessarily a determining factor in the assessment of control risk.

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