Final answer:
An auditor assesses a client's business risk and the risk of material misstatements to apply the audit risk model, which helps in determining the necessary extent of audit evidence needed to conduct an effective audit.
Step-by-step explanation:
When an auditor assesses a client's business risk and the risk of material misstatements to the client's financial statements, it is primarily done to: A) apply the audit risk model to determine the appropriate extent of audit evidence. This process is essential in guiding the auditor on how much and what type of audit evidence needs to be collected during the course of the audit. Understanding the business risk helps in evaluating the likelihood that the client may fail to achieve its business objectives, and the risk of material misstatement refers to the likelihood that the financial statements could contain significant inaccuracies.
It is not solely to determine reliance on the company's internal control systems (B), nor only to determine the tests of balances to be performed (C) though these aspects may be influenced by the risk assessment. Nor is it just to assure the firm that they can perform the audit effectively and efficiently (D), as the assessment directly influences the audit procedures to be carried out.