Question

A reliance on controls strategy would involve _______.

1) the auditor performing primarily tests of controls
2) the auditor performing primarily substantive procedures
3) obtaining written assertions and representations from management
4) the external auditor relying on the internal audit function

Answer 1

A reliance on controls strategy involves the auditor performing primarily tests of controls, after assessing the entity's internal control and determining its effectiveness.

Step-by-step explanation:

A reliance on controls strategy would involve the auditor performing primarily tests of controls. This strategy is adopted when an auditor has assessed the risk of material misstatement through understanding the entity's internal control and determined that the controls are effective. In such cases, the auditor will perform tests of those controls to gain the necessary assurance that they are operating effectively throughout the period under audit.

It contrasts with a primarily substantive approach, where the auditor would focus more on detailed tests of transaction and balances. Obtaining written assertions from management and relying on the internal audit function can also be components of audit planning, but they are not the defining features of a reliance on controls strategy.