Question

What should an auditor do when CONTROL RISK is assessed at the maximum level?

1) Increase the level of substantive testing
2) Decrease the level of substantive testing
3) Maintain the level of substantive testing
4) Stop substantive testing

Answer 1

When control risk is assessed at the maximum level, an auditor should increase the level of substantive testing.

Step-by-step explanation:

When CONTROL RISK is assessed at the maximum level, an auditor should increase the level of substantive testing. Control risk refers to the risk that a material misstatement in the financial statements will not be prevented or detected on a timely basis by the entity's internal controls. When control risk is assessed at the maximum level, it means that the auditor has determined that the internal controls are ineffective or not reliable.

Increasing the level of substantive testing involves performing additional procedures to obtain sufficient appropriate audit evidence. Substantive testing aims to directly detect any material misstatements in the financial statements. By increasing the level of substantive testing, the auditor can compensate for the higher control risk and reduce the risk of not detecting material misstatements.

Therefore, the correct answer is 1) Increase the level of substantive testing when control risk is assessed at the maximum level.