Final answer:
The nature of an audit procedure refers to its purpose, which can be a test of controls or a substantive procedure, and its type, representing the approach taken such as inspection or observation.
Step-by-step explanation:
The nature of an audit procedure refers to its purpose (test of controls or substantive procedure) and its type. Audit procedures are the specific tests and methods that auditors use to gather evidence during an audit to allow them to form an opinion on the financial statements and to assess the effectiveness of an organization's internal controls. The purpose of these procedures can be either to test the controls that are in place within an organization (test of controls) or to substantiate the accuracy of the financial information provided (substantive procedure).
When we talk about the type of audit procedure, we are referring to the specific approach taken such as inspection, observation, confirmation, recalculation, reperformance, or analytical procedures. Each type of procedure serves a different purpose in the audit process. For example, inspection involves examining records or documents, while observation refers to watching a process or procedure being performed.
Saying that the nature of an audit procedure refers to its extent (option 2), timing (option 3), or timing of test of controls only (option 4), is incorrect. The extent is related to the quantity of evidence gathered, whereas the timing refers to when the audit procedure is performed during the audit cycle.