The nature, timing, and extent of substantive procedures correlate with the evaluated level of control risk
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Answer: C. Directly
Explanation
The nature, timing, and extent of substantive procedures correlate directly with control risk. Higher evaluated control risk requires more rigorous, extensive, and detailed substantive testing. Conversely, lower control risk allows auditors to reduce the extent of substantive audit procedures. Control risk is the risk that internal controls will fail to prevent or detect material misstatements. Substantive procedures are detailed tests of transactions and balances performed by auditors. Audit risk models require auditors to balance control risk against detection risk.
Auditors evaluate internal controls during early testing to determine appropriate substantive procedures. Failing to adjust substantive testing based on control risk leads to ineffective audit engagements. Efficient audits optimize resource allocation by tailoring testing intensity to assessed risk levels. Random correlation ignores the structured statistical and logical relationship in audit risk models. Disproportionate relationships would break the mathematical reliability of audit risk assessments. Inverse correlation describes the relationship between control risk and detection risk, not substantive tests.
- Subject
- Accounting and Finance
- Category
- Auditing
- Topic
- —
- Difficulty
- medium
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