Question

Which of the following statements regarding audit procedures is correct?

1) Nature refers to the determination of when a procedure is performed.
2) Extent refers to the type of procedure performed.
3) Tests of controls are audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.
4) Tests of controls are designed to detect material misstatements at the assertion level.

Answer 1

The correct statement is that tests of controls are audit procedures designed to ensure the effectiveness of controls in preventing or detecting and correcting material misstatements.

Step-by-step explanation:

The correct statement regarding audit procedures is: Tests of controls are audit procedures designed to evaluate the operating effectiveness of controls in preventing or detecting and correcting, material misstatements at the assertion level. To clarify, nature does not refer to timing but to the type of procedure being performed, such as inspection, observation, or inquiry.

Extent concerns how much of a type of procedure is performed, which could be influenced by the auditor's assessment of risk. Lastly, tests of controls are specifically designed to evaluate if the controls are functioning effectively, not directly to detect material misstatements; detection is performed by substantive testing.