Question

Under which circumstance is it likely that the extent of substantive procedures will be expanded beyond that anticipated in the audit plan?

1) The auditors have determined that controls have been implemented (placed in operation) but, in accordance with the audit plan, have performed no tests of controls.
2) Certain controls do not leave a trail of documentary evidence.
3) Deviation rates were greater than zero and approached anticipated levels.
4) The operating effectiveness of certain controls was found to be less than expected, although no material misstatements were identified.

Answer 1

Substantive procedures are likely to be expanded when the operating effectiveness of internal controls is less effective than expected, indicating a risk of material misstatement.

Step-by-step explanation:

Under which circumstance is it likely that the extent of substantive procedures will be expanded beyond that anticipated in the audit plan? The circumstance in which it is likely that substantive procedures will be expanded is when the operating effectiveness of certain controls was found to be less than expected, although no material misstatements were identified.

This is because finding that internal controls are less effective than anticipated indicates a higher risk of material misstatement; therefore, auditors will generally perform additional substantive procedures to gain reasonable assurance that the financial statements are free of material misstatement.