Question

Which of the following is an accurate statement regarding the auditor's responsibility for understanding internal control?

1) Transaction-related audit objectives typically have no impact on the rights and obligations objectives.
2) Transaction-related audit objectives typically have a significant impact on the balance-related audit objective of realizable value.
3) Auditors generally emphasize internal control over account balances rather than classes of transactions.
4) Auditors and management are both equally concerned about controls that affect the efficiency and effectiveness of company operations.

Answer 1

The accurate statement regarding the auditor's responsibility for understanding internal control is that they emphasize controls over account balances more than over classes of transactions.

Step-by-step explanation:

The correct statement regarding the auditor's responsibility for understanding internal control is option 3: Auditors generally emphasize internal control over account balances rather than classes of transactions. While auditors are concerned with internal controls over all aspects of financial reporting, their primary focus is on ensuring that financial statements are free from material misstatements, which is typically accomplished by focusing on account balances. Controls over classes of transactions are also important, but they're more related to the efficiency and effectiveness of operations, which management is typically more concerned with than auditors. Auditors have a duty to understand the internal control system as it relates to financial reporting, not necessarily to the efficiency or effectiveness of operations unless those aspects have a direct effect on the financial statements.