Question

If an auditor’s risk assessment is based on the effective operations of controls, the auditor will likely

A. Perform tests of details of transactions and account balances to identify potential errors and fraud

B. Identify specific internal controls that are likely to detect or prevent material misstatements

C. Apply analytical procedures to both financial data and non financial information to detect conditions that may indicate weak controls.

D. Document that the additional audit effort to perform tests of control exceeds the potential reduction in substantive testing.

Answer 1

The correct answer is Option B: Identify specific internal controls that are likely to detect or prevent material misstatements

Reason: Assessing risk based on the effective operation of controls involves identifying specific internal controls that are likely to detect or prevent material misstatements and performing tests of such controls to evaluate their effectiveness.