Question

Which is most likely to occur when the assessed level of control risk increases?

1) Change from performing substantive procedures at year-end to an interim date
2) Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity
3) Use the maximum number of dual purpose tests
4) Use larger sample sizes for substantive procedures

Answer 1

When the assessed level of control risk increases, auditors may need to make changes to their audit procedures. Options 1 and 2 are most likely in this scenario.

Step-by-step explanation:

When the assessed level of control risk increases, it means that there is a higher risk of material misstatements in the financial statements. In such cases, auditors may need to make certain changes to their audit procedures to mitigate the risk. Of the options provided:

1. Change from performing substantive procedures at year-end to an interim date: This option may be chosen as it allows auditors to gather more up-to-date information and address any potential issues earlier in the year.
2. Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity: This option may be selected as it focuses on the internal controls and processes within the entity, which can help identify and address control risks more effectively.
3. Use the maximum number of dual-purpose tests: This option is less likely to occur when the assessed level of control risk increases. Dual-purpose tests are used to test both controls and substantive procedures.
4. Use larger sample sizes for substantive procedures: This option is also less likely to occur in this scenario. Larger sample sizes may be needed when the assessed level of control risk is low and a higher level of assurance is required.

Therefore, options 1 and 2 are most likely to occur when the assessed level of control risk increases.