Question

When the results of substantive procedures identify misstatements, _______.

A. The auditors refer the misstatements to the prior auditor for correction.
B. Auditors consider whether the misstatements may be indicative of the need to re-evaluate inherent risk, control risk or fraud risk.
C. Auditors consider whether the misstatements may be indicative of the need to re-evaluate inherent risk only.
D. Auditors consider whether the misstatements may be indicative of the need to re-evaluate control risk only.

Answer 1

Auditors consider whether misstatements may be indicative of the need to re-evaluate inherent risk, control risk, or fraud risk.

Step-by-step explanation:

When the results of substantive procedures identify misstatements, auditors consider whether the misstatements may be indicative of the need to re-evaluate inherent risk, control risk, or fraud risk. This means that auditors analyze the nature and extent of the misstatements discovered and evaluate if they are related to factors such as the inherent risks of the client's business, the adequacy of the client's internal controls, or the potential for fraudulent activities.

By considering these factors, auditors can determine if the misstatements are isolated incidents or if they indicate underlying issues that need further investigation or adjustments in the audit approach. This analysis helps auditors in making informed decisions about the audit procedures to be performed and the level of assurance to be provided in their audit report.