Final answer:
GAAS requires auditors to perform tests of controls if significant weaknesses are found in the company's internal controls or if the auditor believes that such testing will help reduce the overall audit time and cost. The approach is based on the auditor's initial risk assessment.
Step-by-step explanation:
In the context of Generally Accepted Auditing Standards (GAAS), tests of controls are performed by an auditor under certain conditions. Specifically, tests of controls may be deemed necessary when significant weaknesses are found in the company's internal controls. This helps the auditor to determine the nature, timing, and extent of further audit procedures. Additionally, if the auditor believes that testing the controls could lead to a reduction in overall audit time and cost, they might also choose to perform these tests. In essence, the tests of controls are a way to assess the effectiveness of a company's internal controls in preventing or detecting material misstatements at a reasonable assurance level. Conversely, it is a misconception that tests of controls are always performed when the auditor begins to assess control risk; the auditor's approach is dependent on their initial assessment of the controls in place and the associated risks.