Question

After obtaining an understanding of the entity and its environment, including its internal control, why did an auditor decide to perform tests of controls?

1) To assess the effectiveness of the entity's internal control system
2) To identify any weaknesses or deficiencies in the internal control system
3) To determine the reliability of the financial statements
4) To comply with auditing standards and regulations

Answer 1

An auditor decides to perform tests of controls after obtaining an understanding of the entity and its environment, including its internal control, to assess the effectiveness of the entity's internal control system, identify weaknesses or deficiencies in the internal control system, and comply with auditing standards and regulations.

Step-by-step explanation:

An auditor decides to perform tests of controls after obtaining an understanding of the entity and its environment, including its internal control, for several reasons:

1. To assess the effectiveness of the entity's internal control system: Tests of controls help the auditor determine if the internal control system in place is functioning as intended and effectively preventing or detecting errors and fraud. This assessment helps the auditor gain confidence in the reliability of the financial statements.
2. To identify any weaknesses or deficiencies in the internal control system: Tests of controls may reveal weaknesses or deficiencies in the entity's internal control system, allowing the auditor to provide recommendations for improvement. This helps the entity enhance its control environment and reduce the risk of errors and fraud.
3. To comply with auditing standards and regulations: Auditing standards and regulations require auditors to perform tests of controls to obtain sufficient audit evidence. By conducting these tests, auditors meet their professional obligations and ensure their audit work meets the required standards.