Question

After auditors have assessed control risk, _______.

1) they are in a good position to evaluate the risk of fraud
2) the audit is ready to be finalized and the audit opinion issued
3) the findings should be submitted to management for review and approval
4) the findings should be referred to the internal audit function for investigation

Answer 1

After auditors have assessed control risk, they use that information to help evaluate the risk of fraud and plan further audit procedures, rather than finalizing the audit or issuing an opinion.

Step-by-step explanation:

After auditors have assessed control risk, they have several subsequent steps to take in the auditing process. Evaluating the risk of fraud is indeed part of what an auditor will continue to do following a control risk assessment. Nonetheless, the audit is not ready to be finalized; assessments and evaluations continue beyond the initial control risk. It is premature to issue the audit opinion immediately after assessing control risk. The findings of the control risk assessment are typically not submitted directly to management before the audit procedures are further along, although some communication may occur. More commonly, findings related to control issues may be part of a larger audit findings discussion. Referring findings to the internal audit function is an internal measure and can be part of the process, but it would not be the exclusive next step after assessing control risk.

In the context of an audit, assessing control risk is fundamental for determining how much reliance can be placed on the internal controls of the entity being audited. This includes reviewing whether controls are designed effectively and operating as intended. If internal controls are weak or ineffective, the auditor may decide to increase substantive testing. The control risk assessment helps in shaping the audit strategy and planning the nature, timing, and extent of further audit procedures.

A key point to remember is that an assessment of control risk is part of a larger iterative process that continually informs the auditor's understanding of the audit risk model and the organization's financial statement risks as a whole.

SUMUP of Final Answer Points

• Assessing control risk is a step in the ongoing audit process, not the final step.
• This assessment aids in evaluating the risk of fraud and planning further audit procedures.
• Finalizing the audit and issuing an opinion occur after completing all audit steps and evaluations.