Question

Which of the following is an accurate statement relating to the extent of procedures?

1) If an auditor wants a lower assessed control risk than the preliminary assessed control risk, the number of controls tested increases while the extent of the tests for each control decrease.
2) The extent of testing depends on the frequency of the operation of the controls.
3) All controls must be tested only at year-end.
4) The frequency of testing is the same for both manual and computer controls.

Answer 1

Option 1 is accurate. By testing more controls, the auditor can decrease the assessed control risk.

Step-by-step explanation:

The accurate statement relating to the extent of procedures is option 1) If an auditor wants a lower assessed control risk than the preliminary assessed control risk, the number of controls tested increases while the extent of the tests for each control decrease.

When an auditor wants to decrease the assessed control risk, they may choose to increase the number of controls tested. By testing more controls, the auditor can gain more assurance about the effectiveness of the controls. However, as the number of controls tested increases, the extent of the tests for each control may decrease. This means that the auditor may need to rely on sampling and testing fewer transactions per control.

For example, if an auditor initially assesses control risk as high, they may test a greater number of controls and sample fewer transactions to gather evidence about the effectiveness of the controls. This allows the auditor to lower the assessed control risk while still obtaining reasonable assurance about the accuracy of the financial statements.