Question

During the audit of Marci Stores, the auditors determine that internal controls over inventory security are weak. What should the auditors do?

1) The auditors should rely less on internal controls and adopt a substantive approach.
2) The auditors should not adopt a reliance on controls approach and should perform less extensive substantive testing.
3) The auditors should adopt a reliance on controls approach and perform less extensive substantive testing.
4) The auditors should perform extensive additional tests of controls.

Answer 1

When auditors find weak internal controls over inventory security at Marci Stores, they should rely less on those controls and adopt a substantive approach, performing more detailed checks to ensure the accuracy and completeness of account balances and transactions.

Step-by-step explanation:

If during the audit of Marci Stores, auditors determine that internal controls over inventory security are weak, the auditors should rely less on internal controls and instead adopt a substantive approach. This involves performing more detailed checks of the account balances and transactions to ensure accuracy and completeness. Option 1) is correct, as a weak internal control system increases the risk of material misstatements, leading auditors to enhance the substantive testing to gain sufficient assurance that the financial statements are free of material misstatement.

Options 2) and 3) are incorrect because they suggest relying on control or performing less substantive testing, which is not appropriate when the internal controls are weak. Option 4) might seem like a possibility, but without strong internal controls, additional tests of controls will not improve the reliability of the financial reporting enough to justify reduced substantive testing. As a result, the auditors should conduct extensive substantive testing of Marci Stores' inventory and other relevant accounts to verify their accuracy.