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The nature, extent, and timing of substantive tests of payroll transactions vary depending, in part, on assessed control risk. True or False?

1) True
2) False

1 Answer

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Final answer:

The statement is True; auditors adjust the scope and timing of substantive tests for payroll transactions based on the assessed control risk, performing more extensive tests when risks are higher.

Step-by-step explanation:

The statement that the nature, extent, and timing of substantive tests of payroll transactions vary depending, in part, on assessed control risk is True. When auditors assess internal control risks within a payroll system, they determine the likelihood that material misstatements could occur. If the control risk is high, it suggests that the company's internal controls are weak and more likely to allow errors or fraud. As a result, auditors will perform more extensive and rigorous testing, which could be more frequent or cover more transactions to gain confidence in the accuracy of the payroll information. Conversely, if the control risk is low, indicating strong internal controls, auditors might reduce the nature, extent, and timing of substantive testing because they have greater reliance on the systems in place.

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