Final answer:
When analytical procedures are conducted during the risk response phase of an audit, they are known as substantive analytical procedures and are part of the auditors' assessment to pinpoint potential misstatements in the financial statements. The right amswer is option 1)
Step-by-step explanation:
When analytical procedures are used to obtain audit evidence during the risk response phase, they are referred to as "substantive analytical procedures." This type of procedure is part of the substantive testing that auditors perform to detect material misstatements at the assertion level. Substantive analytical procedures involve making comparisons and analysis of financial and non-financial information to identify any significant or unusual trends, ratios, and relationships that may indicate potential misstatement. Tests of internal control are a separate category of audit procedures used specifically to evaluate the effectiveness of a client's internal controls. The audit report is not ready to be issued at the risk response phase, as this phase is mainly about performing the audit work necessary to address assessed risks. Furthermore, management should not be allowed to select the procedures and tests; this is the responsibility of the auditor, who must maintain independence and objectivity in performing the audit.