Final answer:
Auditors identify relevant controls that satisfy each control objective when testing design in financial reporting.
Step-by-step explanation:
When testing design, auditors identify the relevant controls that satisfy each control objective in each financial reporting area. This process helps ensure that the company's internal controls are effective and mitigate the risks associated with financial reporting.
For example, if a control objective is to accurately record revenue, auditors would identify relevant controls such as reviewing and approving sales contracts, verifying sales invoices, and conducting periodic reconciliations. By testing the design of these controls, auditors can determine if they are appropriately designed to achieve the control objective.
During the design evaluation, if the current design is found to be inefficient or does not adequately mitigate risks, auditors may reconsider the selection of control measures. This iterative approach to design and control assessment ensures that the financial reporting practices are accurate and reliable. By continuously improving control measures, the company enhances its ability to mitigate potential risks and meet its financial reporting objectives.