ExpertHard1 markMultiple Choice
CPA · Question 70 · Area II: Risk Assessment
An auditor is performing an audit of a nonissuer. The auditor identifies a significant risk related to the valuation of complex financial instruments. The auditor determines that substantive procedures alone cannot provide sufficient appropriate audit evidence. What should the auditor do?
An auditor is performing an audit of a nonissuer. The auditor identifies a significant risk related to the valuation of complex financial instruments. The auditor determines that substantive procedures alone cannot provide sufficient appropriate audit evidence. What should the auditor do?
Answer options:
A.
Issue a disclaimer of opinion.
B.
Perform tests of controls to obtain evidence about their operating effectiveness.
C.
Increase the sample size for substantive procedures.
D.
Rely on management's representation letter.
How to approach this question
Audit Strategy: Usually you can choose Substantive Only. BUT, if the system is so complex (IT/Crypto/Derivatives) that substantive is impossible, you MUST test controls.
Full Answer
B.Perform tests of controls to obtain evidence about their operating effectiveness.✓ Correct
B
AU-C 330 states that if substantive procedures alone cannot provide sufficient appropriate audit evidence (e.g., highly automated processing), the auditor MUST perform tests of controls.
Common mistakes
Thinking you can always just 'do more substantive work'. Sometimes the nature of the evidence requires control testing.
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