Question

In determining the level of audit efficiency, once the auditor has identified the key internal controls and identified any deficiencies in order to determine the level of control risk appropriate for a private company client, it is appropriate to decide whether:

A) substantive tests can be reduced sufficiently to justify costs of performing tests of controls.
B) substantive tests can be increased sufficiently to justify costs of performing tests of controls.
C) tests of controls can be increased sufficiently to justify costs of performing substantive tests.
D) tests of controls can be reduced sufficiently to justify costs of performing substantive tests.

Answer 1

The auditor needs to decide if tests of controls can be reduced enough to justify the costs of performing substantive tests.

Step-by-step explanation:

In determining the level of audit efficiency, the auditor should assess the effectiveness of a client's internal controls. Once the key internal controls are identified and any deficiencies are determined, the auditor needs to decide whether tests of controls can be reduced sufficiently to justify the costs of performing substantive tests.

In other words, if the auditor determines that the internal controls are strong and effective, they can rely on those controls and perform fewer substantive tests. This reduces the overall cost of the audit while still providing reasonable assurance.

Therefore, the correct option is D) tests of controls can be reduced sufficiently to justify the costs of performing substantive tests.