When control risk is high, the audit strategy is to
A) do little or no tests of controls and increase reliance on substantive testing of transactions and account balances.
B) assume the client's management is dishonest and immediately report them to the Canada Revenue Agency (CRA).
C) increase reliance on tests of controls and reduce reliance on substantive testing of transactions and account balances.
D) refuse to continue with the remainder of the audit due to the high risk of fraud.

Question

Quizplus · Accepted Answer

When control risk is high, it means that the client's internal controls are not effective in preventing or detecting material misstatements. In such a situation, it is better to reduce reliance on tests of controls and increase reliance on substantive testing of transactions and account balances. This is because substantive procedures are performed on the sources of information themselves, whereas tests of controls provide evidence only that controls are in place and operating effectively. Therefore, choice A is the best strategy. Choice B is not a valid strategy as it assumes dishonesty without sufficient evidence. Choice C is not appropriate because the controls are not effective and cannot be relied upon. Choice D is not a viable option as the auditor has a responsibility to complete the audit and provide an opinion on the financial statements.

When Control Risk Is High, the Audit Strategy Is to