Question

In an audit of a non-public client, when the auditor observes a large number of deviations early in the test of an internal control, what is the best option for the auditor?

1) Stop the test as soon as it is clear that the results of the test will not support the planned level of control risk.
2) Revise the tolerable deviation rate upward to achieve a better match with the observed deviation rate in the sample.
3) Complete the test of internal controls by examining every item in the sample.
4) Stop the test and resign from the audit engagement.

Answer 1

The auditor should stop the internal control test when a large number of deviations are found early, as this indicates that the planned control risk level is not supported. A change in audit approach should be considered to gather sufficient evidence.

Step-by-step explanation:

When an auditor observes a large number of deviations early in the test of an internal control of a non-public client, the best option for the auditor is to stop the test as soon as it is clear that the results of the test will not support the planned level of control risk. Continuing the test after identifying a high number of deviations may not be the most efficient use of time since the likelihood of relying on the controls is reduced. Instead, the auditor should consider modifying their audit approach and perform more substantive procedures or extended testing to gather sufficient appropriate audit evidence to reach an audit opinion.