Question

If controls are weak,________________.

A. Auditors will perform less substantive testing as a result.
B. Auditors will increase the control risk assessment and perform additional substantive tests to detect material misstatements.
C. Auditors will decrease the control risk assessment and perform additional substantive tests to detect material misstatements.
D. Auditors will increase the control risk assessment and perform fewer substantive tests to detect material misstatements.

Answer 1

Auditors will increase the control risk assessment when controls are weak and will perform additional substantive tests to detect material misstatements.

Step-by-step explanation:

When auditors assess the internal controls of a company and find them to be weak, this affects their evaluation of control risk, which is the risk that a company's internal controls will not prevent or detect a material misstatement. In such situations, auditors will typically increase the control risk assessment. Consequently, auditors perform additional substantive tests to obtain sufficient, appropriate audit evidence to ensure that the financial statements are free of material misstatement, be it due to error or fraud.

Hence, the presence of weak controls leads auditors to conduct more extensive substantive procedures to lower the detection risk, which is the risk that the auditors will not detect a material misstatement that exists in an assertion.

B. Auditors will increase the control risk assessment and perform additional substantive tests to detect material misstatements.