Question

Which of the following initial procedures do auditors perform before applying substantive procedures when auditing an account balance?

1) Trace the beginning balance of the prepaid insurance account to the auditor's working papers from the prior year's audit.
2) Scan the transactions in the account for unusual items.
3) Obtain a trial balance or other detailed report for the account.
4) Check if appropriate and understandable terminology is used, as prescribed by the applicable financial reporting framework.

Answer 1

Auditors will have more confidence in internal controls and audit evidence generated internally 1. with a client that maintains an effective control environment. A poor control environment or receiving information.

Step-by-step explanation:

Auditors place greater confidence in internal controls and internally generated audit evidence when the client maintains an effective control environment. An effective control environment is characterized by robust policies and procedures, diligent oversight, and a culture that emphasizes integrity and ethical behavior. On the other hand, auditors are more skeptical about the reliability of internal controls and evidence when the control environment is poor. When controls are centralized and controlled by just one department, or when audit evidence is received only from one department, it could lead to a higher risk of error or fraud, and therefore less confidence from auditors.

• Auditors will have more confidence with a client that maintains an effective control environment.
• A poor control environment makes auditors skeptics about the internal controls and audit evidence.
• The centralization of controls or evidence from a single department could increase the risk of error or fraud.