Final answer:
If auditors adopt a reliance on controls approach, they still need to perform some substantive procedures. The reliance on controls approach is a method used by auditors to evaluate and assess the effectiveness of internal controls within an organization.
Step-by-step explanation:
If auditors adopt a reliance on controls approach, they still need to perform some substantive procedures. The reliance on controls approach is a method used by auditors to evaluate and assess the effectiveness of internal controls within an organization. It involves relying on the controls in place to minimize the risk of misstatements in financial statements. However, this approach alone cannot provide sufficient evidence to support the accuracy and completeness of financial statements, so auditors need to perform some substantive procedures to obtain further evidence.
Substantive procedures are audit procedures that are designed to detect material misstatements in the financial statements. These procedures include substantive tests of details, such as testing individual transactions, account balances, and disclosures, and substantive analytical procedures, such as comparing financial information to industry benchmarks or prior period data. By performing substantive procedures, auditors can obtain independent evidence to support the assertions made in the financial statements.
For example, if auditors adopt a reliance on controls approach and determine that a particular internal control is effective in preventing or detecting misstatements related to revenue recognition, they may decide to reduce the extent of substantive procedures in that area. However, they would still need to perform some substantive procedures to ensure that the financial statements are free from material misstatements.