Question

If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on which of the following for its assessment?

A. Documentation and test controls over specific risks
B. Self-assessment processes in conjunction with entity-level controls
C. Documentation and test entity-level controls over the entire entity
D. Selective control test at that location

Answer 1

Management can rely on self-assessment processes in conjunction with entity-level controls when financial reporting risks are low and entity-level controls are robust.

Step-by-step explanation:

If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on self-assessment processes in conjunction with entity-level controls for its assessment. This approach can be effective as it leverages the existing controls that are already in place across the entity which are known to be functioning well. It allows management to confirm that these controls are continuing to operate effectively without the need for more intensive and possibly redundant testing of controls at the specific location.