Question

Which of the following arranges the general types of audit test in the order they are normally performed in the audit?

1) Risk assessment procedures, Tests of controls, Substantive procedures
2) Substantive procedures, Tests of controls, Risk assessment procedures
3) Tests of controls, Risk assessment procedures, Substantive procedures
4) Risk assessment procedures, Substantive procedures, Tests of controls

Answer 1

Option 1 is correct, the general types of audit tests are performed in the order of Risk assessment procedures, followed by Tests of controls, and finally Substantive procedures.

Step-by-step explanation:

The correct order in which the general types of audit tests are normally performed in an audit is: Risk assessment procedures, Tests of controls, and Substantive procedures. The auditor first performs risk assessment procedures to understand the entity and its environment, including its internal control. This helps in identifying the risks of material misstatement. Then, based on the risk assessment, the auditor determines whether it is necessary to perform tests of controls, especially if the auditor plans to rely on the effectiveness of the entity’s controls over financial reporting. Lastly, substantive procedures are performed to detect material misstatements at the assertion level. Therefore, option 1) Risk assessment procedures, Tests of controls, Substantive procedures, is the correct sequence.