The audit strategy for a client with high inherent risk and high control risk will include
A) no or very limited tests of controls.
B) decreased reliance on substantive tests.
C) increased testing of controls.
D) increased reliance on controls.

Question

Quizplus · Accepted Answer

In a situation where both inherent risk and control risk are high, auditors tend to rely less on the effectiveness of the client's internal controls. This is because high inherent risk indicates a greater susceptibility of an account balance or class of transactions to misstatement, and high control risk suggests that the client's internal controls are not effective in preventing or detecting such misstatements. Therefore, auditors will likely perform more substantive tests (direct tests of financial statement balances and transactions) rather than focusing on testing the controls or relying on them.

The Audit Strategy for a Client with High Inherent Risk