Question

Tests of controls are the procedures used to test the effectiveness of controls in support of a reduced assessed control risk?

1) are the procedures used to test the effectiveness of controls in support of a reduced assessed control risk.
2) are used to support the ending balances in the balance sheet and income statement accounts.
3) are performed at the end of the audit.
4) are designed to detect fraud.

Answer 1

Tests of controls are procedures auditors use to evaluate the efficacy of a company's internal controls, specifically to support a reduced assessed control risk. They are not primarily for supporting financial statement balances, conducted only at the end of the audit, or designed explicitly to detect fraud. The correct response to the question is (1) are the procedures used to test the effectiveness of controls in support of a reduced assessed control risk.

Step-by-step explanation:

Tests of controls are specific procedures auditors use to evaluate the effectiveness of a company's internal controls. The purpose of these tests is to determine whether the controls are functioning as intended to prevent or detect errors or fraud within the company's accounting system. When auditors assess control risk as low, they expect that the controls are working effectively.

Regarding the options provided:

• Tests of controls are not primarily used to support ending balances directly; that's the purpose of substantive testing.
• They are not necessarily performed only at the end of the audit; they can be conducted at various times throughout the audit process.
• While detecting fraud is important, tests of controls are specifically designed to assess control risk, not directly to detect fraud.