Final answer:
Understanding components of internal control informs the design of tests of controls and factors affecting material misstatement risk, thus the correct answer is D) Both A and C.
Step-by-step explanation:
Understanding each of the components of internal control provides knowledge about both the design of tests of controls and factors that affect the risk of material misstatement. When internal control components such as control environment, risk assessment, information and communication, monitoring activities, and existing control activities are clearly understood, it informs the auditor's decisions on how to effectively design tests to confirm the operation of those controls (Option A). Additionally, this understanding aids in recognizing the various factors that may influence the risk of material misstatement, which is essential for conducting a thorough and effective audit (Option C). Therefore, the correct answer is D) Both A and C.